According to a new survey, from Devonshire Corporate Finance, entrepreneurs are undervaluing their businesses. The survey reveals that 51% of business owners mistakenly believe that the most likely buyer for their business is a direct competitor.
The survey - Exit Strategies for Small to Medium Enterprises (SMES)- also showed while more than half of those interviewed plan to sell their business very few were grooming it for that purpose and even fewer had taken professional advice on how to get the best possible price for it.
Steven Neal, director, Devonshire Corporate Finance comments, "It is the strategic buyer, not a businesses competitor, who pays a premium price for a business. The survey shows that many owner managers may not appreciate this and could consequently be missing out on achieving the best price for their business. The sale of a business is often a once in a lifetime opportunity, so it is essential to get it right and achieve the best price."
According to the research, 92% of owner managers were aware of what is meant by an exit strategy, however 70% do not have any formalised exit strategy in place. Neal comments: "It is critical that owner managers formulate a written exit strategy. It is surprising how many successful entrepreneurs often fail to consider this in sufficient depth. It really is a case of not thoroughly planning for their exit, is planning to fail.
" The research showed that the main reasons why owner managers had considered selling their business in the past included receiving an offer they couldn't refuse or that they were approaching retirement age. Indeed, after the sale, 29% said that their main priority would be to spend more time with family and friends. Although nearly 9 out of 10 owner managers stated that their current management team was sufficiently competent to run the business on its own, only 52% would consider selling the business to them (a management buyout).
The majority of owner managers do not expect any close family member to join (71%) or take over their business (79%) when they retire. Perhaps reflecting the entrepreneurial nature of business owners, after the sale, 46% of business owners would like to keep working, 31% for the same company and 15% for another company.
Nearly half of managers interviewed have bought at least one business in the last 10 years. One in 3 have bought up to 2 businesses and a further 12% have bought more than three. In contrast, the incidences of selling a business are lower - 9 out of 10 managers said that they hadn't sold a business in the last 10 years.
When it comes to the money received from the sale of the business, the most popular pay out option proved to be a cash sum paid out immediately. Although, approximately 1 in 6 owner managers would prefer either a large sum spread over a period of time or an even larger sum spread over time, but dependent on the company's performance.
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