An estimated $3 trillion dollars will be “left on the table” by small business owners due to failure to plan their business exits

blog_mouse_pc_400_clr_2729My previous blog posting, Reconstructing Avery’s $10.4 Trillion in Business Transfers, details the assumptions and calculations supporting my estimate that the total business valuation for small businesses (which I define as 49 or less employees) is just short of $4 trillion dollars ($3.775 trillion based on my calculations).  That valuation number assumes all small business owners do whatever is necessary to prepare to have a saleable business.  We all know that is not the case.  In fact, an ROCG study of 502 respondents with revenues between $1 million and $100 million found that only 9% had a formal, written transition/succession plan.  For the businesses that interest me – 49 employees or less, I’d guess the existence of formal exit plans may be under 5%, possibly closer to 1%.

It is generally accepted that only 20-25% of small businesses ever sell.  Some would argue the true number is not even that high.  The number one reason small business are not saleable is the business owner’s failure to plan for the sale of their business.  Most owners don’t even realize the necessity to plan for their business exit.  Many think selling a business is like selling a home, but they couldn’t be more wrong.  They have no idea of the number of obstacles they might face.  In fact, in future posts, I will detail and address 66 obstacles I’ve identified that owners must be prepared to address and overcome or minimize.

So, here’s the really bad news that can be deduced from all these statistics.  Assuming only 20-25% of small businesses ever sell and the value of all small businesses (49 or less employees) is approximately $4 trillion dollars, one can deduce that 75-80% of all business owners are likely to leave a total of approximately $3 trillion dollars on the table through failure to plan for their business exits.

I am very interested in your feedback and comments.  Do you agree with the assumptions? What can we do about it?  How can we reach small business owners with this distressing information?

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ATTN! Business Owners: Only 25% of businesses ever sell (How can we spread the news?)

figure_with_megaphone_400_clr_2276Attention, can I have your attention please? Business owners, please – your attention, please. Testing 1, 2, 3. Can you hear me? Hello, anybody out there listening? I have an important message to deliver. Please, can I have your attention?

Business owners: whether you can hear me or not, here’s my message:

Only 25% of small businesses ever sell! If you are like the “typical” business owner, you believe that 50-90% of your personal net worth is in the value of your business. But, 75% of you are not going to succeed in monetizing that portion of your net worth!

Now do I have your attention? Hello? Can you hear me? Please – acknowledge by screaming “Yes, I hear you.” (silence)

That’s my message, but nobody is listening – yet.

As I begin to blog, I find myself dreaming. In my previous blog post, I dreamt that President Obama would mention this problem – 75% of small businesses never sell – in his State of the Union Address and eliminate taxation of small business sales. It doesn’t seem like he intends to do that. But what if he changed the wording of his infamous “You didn’t build that” statement? He could say “You think your building value and equity in your business, but are you really? Only 25% of small businesses ever sell! Get some exit planning advice so you can monetize the sweat equity you have poured into your business. We need to save those jobs ….”

How can we reach small business owners with this message? Dreaming again – I’m a sports fan. I believe a lot of small business owners are sports fans. What if all MLB baseball stadium’s outfield fences had signs that read “Only 25% of small businesses ever sell!” What if the ribbon boards in NHL and NBA arenas around the country flashed three to four times a game: “Only 25% of small businesses ever sell!” How about a silent Super Bowl commercial – it only has words on the screen – “Only 25% of small businesses ever sell!”

Back to reality. How can we reach a large number of business owners with this message? More than a year ago, I did a little research using InfoUSA’s query engine. At the time, I was interested in the number of businesses (in certain SIC codes) with 3-49 employees (small businesses by my definition). That count (excluding some SIC codes that were not of interest) was almost 4,000,000 businesses. There were another 2,600,000 with 0-2 employees. How can we effectively reach those business owners with the message: “Only 25% of small businesses ever sell!”

I am soliciting suggestions. You can dream, as I have. Or you can offer suggestions within the realm of reality (such as LinkedIn Groups that might successfully reach business owners with this message.)

Let’s discuss it. Please comment below.

My Dream for Obama’s State of the Union Address (re: taxes on business sales)

tax_text_pie_graph_1843(Note: I encourage you to read the previous posting in this blog to understand the full context of the implications of Taxmageddon on business sales before reading this posting. As stated in the previous posting, I did not start this blog to comment on current affairs. The need for exit planning is timeless and, for the most part, the need to plan for a business sale is not dependent on what’s happening currently. So this will be an unusual type of posting for this blog.)

A prequel (dream) excerpt of President Obama’s State of the Union Address:

“We all recognize that small business drives our economy. Small business owners create 70% of all jobs in our national economy. I was recently provided with astounding research that indicates there are approximately 7 million baby boomer business owners, yet only 20-25% of small businesses ever sell. I’ve been informed that the onerous tax implications of a business sale are one of the major reasons that elderly business owners never transfer their business. We cannot allow 75-80% of businesses to wither away.

We cannot afford to lose the millions of jobs those owners have created. As baby boomer business owners age, there is nothing more critical than having those businesses passed to the next generation of business owners, who with their entrepreneurial spirit and drive, can not only maintain existing jobs, but grow the businesses and create new jobs.

Although I am not backing down on my call for new taxes on the wealthiest among us, I recognize the need to exempt the taxation of small business owners who sell their businesses. Those owners are the heroes of our society. They deserve to be rewarded for the countless hours of sweat equity poured into their business. We absolutely have to make sure that retiring business owners are passing along their businesses to the next generation.

I call on Congress to immediately enact legislation to completely eliminate all taxes on the sale of a business, including making an exception within C-Corporation tax regulations where the tax implications are most devastating. While we may not be able to agree on many issues in our political undertakings, this is something we should all agree on. Let’s get this done next week.”

Do you like my dream?

Why I’ve Decided to Blog – 75% (or more) of Businesses Will Never Sell – That’s Why

blog_mouse_pc_400_clr_2729I am passionate about small business. I truly do think small businesses are the primary driver of our national economy. But what I really love about small business are the owners. Over the course of my 35+ year business career, I’ve met all kinds of owners. Some have great business skills, some have very little business skills, some were brilliant, some were not so smart. But all of them were living the American dream of owning a business. And, mostly, that’s what I love about them.

The “game of business” is seldom easy. In most instances, it requires significant internal fortitude and persistence to push through all kinds of obstacles – just to break even! And then the small business owner has to have the tenacity to push the business to profitability. For most, it’s a struggle that requires much more than the typical employee’s 40-hour work week. That’s what I admire most – the “sweat equity” investment required of most business owners.

So what’s that got to do with my decision to blog? Well, here’s the thing: when they are ready to end their business ownership career, almost all owners would like to cash out their “sweat equity” investment, but 75% or more will never be able sell their business to convert it to cash! And that is a crying shame.

If only owners realized they needed to plan for the sale of their business, I believe most could sell their business. My goal, as unrealistic as it may seem, is to turn around the odds of a successful business sale. At this point in time, the odds are about 3:1 against a successful sale. In conjunction with others (other authors, exit planners, business brokers, business valuators, CPAs, attorneys, personal financial planners, and other business advisors), I’d like to turn that statistic around to 3:1 in favor of a successful sale. That’s a very ambitious goal, but there is almost nowhere to go but up.

While I await the coming release of “How to Plan and Sell a Business”, I couldn’t wait any longer to get started at achieving my goal. So, this blog is born!

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