My 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?