No thinking person would ever willingly choose to throw their time, money, and effort into an investment that yielded them only a 3% return (or less).
Yet, that is precisely what happens, day in and day out, when business owners sell their businesses. Sellers in today’s market are at the mercy of a broken, inefficient system dominated by incompetent brokers who contribute little to the process. Since most business owners do not have business succession plans in place, they are unprepared to gain the upper hand in the complex, fragile undertaking of getting their companies sold successfully.
Industry statistics paint a dismal picture: the odds are stacked against any seller who wants to sell in today’s marketplace and the situation shows no signs of improving in the future. Over 368,000 business owners turn 65 every year. Of those, around 226,000 say they want or need to sell their businesses and retire. However, the current system closes only a fraction of sales, a mere 24,000 or so a year.
These horrible statistics are having a big impact on all sellers, but are especially hard on Boomer owners looking to retire. Because they have such a low expectation of selling, many owners are forced to stay in their businesses even when they have health, family, or other situations that need their immediate attention. You don’t have to talk to too many owners to realize they are stressed-out, tired, and afraid for their futures. The system is irrevocably broken and hindered by factors such as a lack of qualified, competent buyers, too much third-party involvement (business brokers, lawyers, banks, etc.) and too many investment choices for the small pool of buyers that exists.
When I began my business career, it didn’t take long for me to realize that those of us in the business of buying and selling successful small businesses needed to come up with viable alternatives. After examining over 300 deals, deals in which nearly every seller was getting hosed, I came up with what I called the “Delta Solution.” My partner and I determined that certain key elements MUST be included in any deal in order to ensure a successful outcome for sellers.
Before discussing the best plan for dealing with shortcomings in the business selling process, let’s take a look at a typical scenario. While this is a fictional illustration, it will help you understand the challenges you face as an owner who wants to sell his or her business and give you an idea of how a new approach will work.
Let’s say that Anthony owns an air conditioning and refrigeration company with revenues around $2 million dollars a year. Anthony’s business creates approximately $300,000 in cash profits per year. In a traditional selling situation, the company, if it sold at all, would probably sell for between $900,000 and $1,000,000.
After paying broker fees, (10% or more), professional fees, and taxes (at least 20%), Anthony would be left with around $700,000 in cash profits from the sale. More than likely, especially if he is near retirement age, he will be faced with investing that money securely, so that it will generate a stream of income but not face exposure to risk.
The problem with this understandably conservative approach is that Anthony, even if he is a pretty savvy investor, is likely to get a 10% return at most. So, he now winds up going from a lifestyle based on a $300,000 a year income to one in which he makes only $70,000 a year. This represents a huge change in lifestyle; one which Anthony and his family are unwilling to make.
Unfortunately, unless he is exposed to another way of selling, Anthony may find he has no other choice when he decides to he needs to leave his business. This is the type of situation faced by business owners every day and it has long-term repercussions for the entire economy.
Sellers want and need:
• A quick, efficient sale that takes weeks, instead of years.
• Predictable, secure income that they will not outlive.
• No broker fees
• Less tax or no tax at all
• Competent buyers who will grow their business and not run it into the ground
Our experience led my partner and I to believe that the only way to achieve these goals was to create a method of selling that sets up a business so that it becomes an annuity.
Properly structured, with an iron clad, asset-backed guarantee that removes all risk for the seller, such a plan is radically different than anything currently being done. The ideal exit strategy would, first of all, provide the owner with qualified, competent buyers committed to growing the business and keeping it intact.
It would create a steady, reliable monthly paycheck for the owner that contains a cost of living adjustment and a guarantee to alleviate risk. Ideally, a balloon payment to the family would occur upon the owner’s death. The entire process of selling would take only a few weeks instead of several months or years, allowing the seller to get on with the rest of his or her life more quickly.
If you are an owner looking to sell your successful business, you can’t afford to settle for anything less than the criteria I mentioned above.
You certainly can’t afford to turn this crucial phase of your life over to an incompetent, commission-drive business broker.
I encourage you to check out the recent webinar I did which explains in more detail how business owners can successfully retire with more money, a lifetime stream of income, and with paying a lot less in taxes.
To watch the webinar, click here.
If you like what you see and want to explore these alternatives further, please visit our Getting Started page.
Delta Business Services is the only company in the United States to offer this unique 5 step strategy that gives business sellers the upper hand when the time comes to exit. Delta is passionate about helping sellers of small businesses find the best, most qualified buyers, avoiding paying unnecessary fees and taxes, and creating a lifetime income from the sale of their company that they will never outlive.