"I'm ready to sell and exit!" — a small business owner can arrive at that point in their thinking and emotions quickly and for many good reasons. Common reasons include retirement, health issues, a desire to do something else (e.g., travel with a spouse), or simply being burned out and tired of owning a business.
So, the business owner reaches out to a Business Broker to sell their business, but they may face some harsh realities. Even though they are "ready to sell," the Business Broker informs them that their business isn't ready to be sold as is, at least not for the $$$$ they need to get out of it. They learn that even though they have realized an excellent standard of living by doing "what seemed good" along the way, they've created a "lifestyle business" rather than building a business that would be of value to a viable buyer. It could take the Business Broker years to get interested buyers and close a sale that doesn't come close to seller expectations, wants, or needs.
Following are a few common characteristics of a lifestyle business that are not attractive to a viable buyer:
Dependence on the Owner:
The business relies heavily on the owner's skills, knowledge, and relationships, making it challenging to transfer smoothly to a new owner.
The owner is often involved in day-to-day operations, which can create a risk if the owner leaves.
Lack of Scalability:
The business may have limited growth potential and is designed to support the owner's lifestyle rather than expansion.
It may not have systems or processes to scale up operations quickly.
Limited Market Presence:
The business may serve a niche market with limited customer base, which can be unattractive to buyers looking for broader market appeal.
Often, it lacks strong brand recognition or market penetration.
Financial Stability:
Revenue and profits might need to be more consistent, often fluctuating based on the owner's efforts and involvement.
Limited reinvestment into the business for growth may lead to outdated equipment or technology.
Employee Structure:
The business might have a small team with limited delegation of responsibilities, which could lead to potential operational challenges during the transition.
Employees may have loyalty primarily to the owner rather than the business itself.
Documentation and Processes:
Poor documentation of business processes, customer lists, and operational procedures makes it difficult for a new owner to understand and run the business.
Often needs formalized business plans or strategic direction.
Customer Base:
Customer relationships may be informal and personal, heavily tied to the owner.
Often, a small, local customer base with limited long-term contracts or recurring revenue streams.
Financial Records:
Financial records may need to be better maintained or in a standard format, complicating due diligence for potential buyers.
Often needs audited financial statements or comprehensive financial reports.
Strategic Planning:
Business decisions may be based on the owner's preferences rather than market opportunities or strategic growth plans.
Often, it needs a long-term vision or strategic roadmap for future growth.
The story's moral is this: if you intend to HAVE AND EXIT WITH A LIFESTYLE BUSINESS, the characteristics above can be acceptable, especially if you've met your financial goals outside the business. That can be an effective exit plan if it is indeed planned. But you shouldn't expect to say, "I'm ready to exit!" and simultaneously wish to be in a position to sell your business as a business intentionally built to sell for value. A company built to sell takes years and should begin when it's launched.
If you’re in a situation where you have a lifestyle business, but need to have a business built to sell in order to exit successfully, we can help if you’re willing to invest time and finances in making it happen. Contact us at email@ennislp.com for an exploratory conversation.
You can also get a FREE Exit Assessment HERE.