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Reasons to Plan & Implement Your Exit Strategy Right Now (Part Two)

This blogpost is the second of a three-part series dedicated to dialing in a successful exit strategy for your business. Knowing exactly where you are heading with your business is the key to a successful exit from the business. As we validated in Part One of this series, very few small to medium-sized companies have a clear plan in place.

“Grit is passion and perseverance for very long-term goals. Grit is having stamina. Grit is sticking with your future day in, day out, not just for the week, not just for the month, but for years, and working really hard to make that future a reality. Grit is living life like it's a marathon, not a sprint.”
~ Angela Duckworth

Regardless of your current exit strategy status, here is another top reason to be focusing on developing a strategy for the overall health and success of your company.

Windows of Opportunity

From a value standpoint, many factors align to create “windows of opportunity” for the successful execution of your strategy. These factors include industry cycles, technology cycles and macro-economic cycles. All of these factors are influenced and eventually based on current market perception. Most often, the better things “seem” to be, the higher the quality of opportunities for progress and completion of your objectives.

Current Snapshot: Small-Business Owners Remain Upbeat Amid Improved Revenue

Small Business Owners Remain Optimistic - 2018 SMB Index

A majority of owners (52%) now say their revenues increased a little or a lot in the past 12 months, higher than at any point since 2007. And 66% of owners expect their revenues to increase in the next 12 months, a sharp increase from the 58% measured last quarter, and the highest recorded in this 15-year trend.


Excerpted from the latest Wells Fargo/Gallup Small Business Index Survey

Current Market Perceptions - August 2018

Consistent with general market optimism, advisors believe seller advantage is growing, with year-over-year seller-market sentiment increases in all market sectors. In the Main Street market, for businesses valued at less than $500,000, seller market sentiment is at the highest it’s been since the survey started in 2013.

Figure 1 - Seller’s Sentiment

Q2 - Seller's Sentiment

It’s a remarkable time to sell a business. Per the IBBA, roughly 21% of advisors say 2018 is the best year they’ve ever seen for business owners to sell their businesses. Another 37% say it’s the best time in five years, and 17% say it’s the best in the last 10 years.

Figure 2 - Multiples and Cash at Close

Q2 2018 - Median Multiples & Cash At Close

Multiples remain high in most categories. In addition to strong valuations, sellers are getting more cash at close this quarter, matched with slight declines in seller financing.

Figure 3 - Cash At Close

2018 Q2 - Cash At Close

*Cash at close reflects a combination of buyer’s equity and senior debt.

Post Transaction Opportunities

After a sale, business owner goals vary. Roughly a third will stay engaged in some kind of business activity. Owners in both Main Street and the lower middle market display entrepreneurial tendencies, with 12% planning to start another business and 17% pursuing other business opportunities.

“The idea is to maximize value by selling now,
diversify their net worth, and then buy or start
another business where they see opportunity.

About a fifth plan to travel after selling their business. Other top interests include moving to a vacation home and taking care of family.

Figure 4 - Reasons for Sale

2018 Q2 - Reasons for Sale

Retirement continues to lead as the number one reason to sell across all sectors, followed by burnout and new opportunities.

As outlined in our previous post, as well as above, 2018 is shaping up to be one of the best years to sell a business in a decade. It is important to remember that from the time you decide to sell your company through to a successful transaction, time and preparation are necessary to ensure your plan's full success.

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