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Small business owners likely to overlook exit strategy

| Sep 20, 2017 | Buying & Selling Businesses |

North Carolina enterpreneurs too often overlook the most valuable investment in their portfolios. Most people who own small- to mid-sized businesses work very hard for years to begin, develop and maintain their enterprises, yet they may spend little time planning and strategizing to ensure that the direction of the business aligns with their own personal savings and retirement goals.

Broadly speaking, there are three challenges commonly faced by business owners that could hurt the value of the business when it comes time to sell. First, small businesses are often too heavily dependent on the owner to make things run. Ownership energy is hugely important, but if the business falls apart without the primary shareholder, it might be hard to sell to someone else.

Second, it can be a problem if too large a percentage of revenues come from a small pool of clients. Ideally, revenues should come from many different sources, so the business doesn’t fail if one or two clients are lost. Too much reliance on a small client pool also gives clients undue leverage in some cases.

Third, owner-driven enterprises may lack a management team that can handle the operation in the owner’s absence. According to data reported by the Exit Planning Institute, 78 percent of small businesses have no formal transition team in place to effect a sale, and 49 percent have done no planning at all. The Exit Planning Institute also reports that between 70 and 80 percent of businesses on the market do not sell.

Individuals who are interested in selling their business may want to consult with professionals, including an attorney. An attorney with experience in business and commercial law may be able to help by drafting the legal documents necessary to structure a deal and memorialize the agreement. An attorney may be able to negotiate terms of sale that are agreeable to all parties involved.

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