A new seminal study on the net worth of small business owners illustrates, using comprehensive statistical research, what many of us have assumed for years: Entrepreneurs are woefully underprepared for retirement, and many, if not most, have unreasonable valuation expectations that their businesses will fund their retirement years. Sadly, many are not aware of this situation.
One of the most popular concepts that Generational Equity seminar leaders introduce to business owners at our one-day M&A workshops is “recasting.” For business owners, many of whom do not have a background in accounting, the idea of revising their accounting statements to reflect the true financial operations of a company is novel and new.
In past articles we have examined the challenges of family dynamics when running and operating a closely held, family-run business. We have also talked about the challenges of a parent deciding when, who, and how to pass the family business on to his or her offspring. History is replete with family-run businesses that exist well into future generations. However, it is also full of stories that clearly describe the failings of these businesses and how difficult it can be to maintain a family-run business beyond the first generation.
Topics: family dynamics
A few weeks ago a colleague of mine gave me a reprint of an article that first appeared in the Harvard Business Review in the May/June issue from 1961. Now you might be wondering why I would be examining an article that is more than 50 years old and discussing it in 2014. Here’s why: The title of the article is “How NOT to Sell Your Company.”
I was intrigued by the title because I was wondering what M&A experts were advising business owners 53 years ago. I am surprised to report that the issues affecting business owners today are the same as they were in 1961. Avoiding common M&A mistakes never ends, it seems.
The question arises with nearly every potential client we meet with: Why do I need an M&A advisor to sell my business? Can’t I just do it myself and save a significant amount of money in fees? How hard can it be to close a deal with a buyer? I negotiate contracts all the time with my clients and vendors.
Topics: selling a business
The statistics are pretty alarming if you are planning to sell your business in 10 years:
“With an estimated 76 million baby boomers in the pipeline turning 65 at a rate of 10,000 per day for the next 15 years, according to Pew Research Center, many businesses owned by people in their 60s will be changing hands. The 2011 U.S. Census reported there were 7.4 million small businesses — firms with 500 employees or less — in the country providing jobs for 113 million workers.”
With my never-ending goal of finding relevant information for our faithful readers, I sat in on a PricewaterhouseCoopers (PwC) webinar recently entitled “Successful M&A Integration: Looking Beyond the Here and Now.” As the title implies, the webinar focused on issues and challenges with successfully closing deals in today’s environment. And as with all of PwC’s webinars, research, and whitepapers, it was full of interesting analysis of successful dealmaking.
To obtain the data for their analysis, PwC surveyed senior management from Fortune 1000 companies that had closed at least one deal in the prior three years. They ended up with 106 respondents. Of this group, 46% were CEO, president, COO, CFO, EVP, and SVP, and the others were vice presidents.
This is a question that merger and acquisition analysts are asking these days. As we have discussed, M&A activity in 2014 should reach levels not seen in quite some time. The real question on every business owner’s mind, though, should be: How long with this continue? If it is a seller’s market now, what about a year or two from now?
We often hear and read about high tech deals and the tremendous valuations that these companies get while generating little profit in many cases. What is often assumed is that the owners of these high tech entities are extremely savvy dealmakers and that is why they are getting such tremendous deals for their companies.
By many expert predictions, we are sitting on the cusp of the next M&A up cycle. The numbers so far this year, based on a variety of sources, are all pointing to the same thing: The next 18-24 months could outpace the prior merger and acquisition spikes prior to the Great Recession.