Very Poor Business Exit Planning Statistics

Very Poor Business Exit Planning Statistics

Depending on the size of the business, only 20 – 33% of business are ever successfully sold. Why so few? It is primarily due to owners not realizing the need to plan for the sale of their business.

There are some crazy statistics regarding business owners failure to plan for the sale of their businesses. ROCG, a company that specializes in business transitions, conducted a survey and published some of the results in a white paper entitled: “Business Transition/Succession – The Increased Risk of Catastrophic Losses and What You Can Do to Avoid Them.” There were 502 respondents to the survey – about 77% from the United States, 18% from Canada, and 5% from elsewhere. The respondents had annual revenues between $1,000,000 and $100,000,000.
But the results are about the same whether it is the US, Canada, Uk, Ireland, Australia etc.

58% of business owners have no exit plan. That is just crazy.
Only 9% of the respondents had a formal, written transition/succession plan! Another 33% indicated they had an informal plan. The white paper contained no further information on the extent, validity or effectiveness of informal plans. But, 58% had no plan! Other studies by PricewaterhouseCoopers have also indicated that business owners are not adequately planning for the transition of their business.

A business owners business typically represents 50-90% of an owner’s net worth. A lot of small Business owners put every penny they have into keeping the company going. Whether that is to keep staff on teh payroll in a bad year or whether to spend money on machinary etc.
Considering that other studies indicate the business itself represents 50-90% of a typical business owner’s net worth, those statistics are amazing. In the ROCG survey, 84% of the respondents acknowledged that the proceeds from their transition were important to their future in retirement (15% critical, 28% very important, 20% important and 21% somewhat important). It may seem obvious that some planning is necessary to maximize the monetisation of one’s largest asset. Despite the importance, it is clear that business owners are not adequately planning for their business exit. You spend hours on sales plans, on customer satisfaction plans. But spend no time on exit plans.

Reasons owners fail to plan for the sale of their business
By asking the question “Why haven’t you prepared a formal transition/succession plan,” the ROCG white paper survey results help to explain the reasons for business owners’ failure to plan their business exit. The following is a list in order of the frequency of responses:

1) Too early

2) Other (further information below)

3) Too time consuming

4) Too complex, wouldn’t know where to begin

5) No adequate advice/tools available

6) Can’t think of doing anything else

7) Don’t want to deal with family/employee issues

8) (Don’t like) the thought of it being the end

9) Too intimidating, scary

In the category of 50-65 year-olds, “too early” had about twice the number of respondents as “too time consuming” and about three to four times as many respondents as the rest of the reasons (except for “other”). The fact is it is never too early to start planning your business exit.

Emotional fear factors related to selling a business
In the ROCG survey, the category “other” was the second largest response overall. But, among those planning to exit within five years, it was the number one response. Although ROCG provided a write-in space to explain the answer, most respondents did not provide specifics. The white paper speculates that emotional fear factors such as: the fear of letting go; the fear of loss of wealth; the fear of loss of control; and the fear of conflict may be the reasons behind the “other” response.

In Ireland, the statistics might be even worse
The ROCG survey statistics are based on responses from companies with $1,000,000 to $100,000,000 in revenues. In Ireland most small businesses have revenues below $5,000,000. It only stands to reason that larger business owners may spend more time planning their business exit than smaller business owners.

Here’s the bottom line: if you don’t spend time planning for the sale of your business, you are likely to face overwhelming obstacles that preclude a successful sale. Only about 25% of small businesses ever sell, meaning the odds are 3-1 against a successful sale. You can turn those odds in your favor if you take seriously the need to plan for your business exit, especially if you do so three to five years – or more – in advance of your desired departure. But, it is never to early to start!

Lets start the process and get you the best outcome that is possible when you sell your business.