We are currently in the middle of a massive wave of Baby Boomers retiring from their jobs and businesses. That historic demographic has finally reached retirement age. Approximately 10,000 Baby Boomers retire every day, in fact, and sixty-three percent of privately owned businesses are owned by Boomers. Unfortunately, many of those Boomers are not fully prepared to sell their companies because they have not done enough exit planning. As a result, the majority will not be able to generate liquidity from their businesses beyond normal compensation – even though they have been counting on the value of their businesses as a major funder of their retirement.
Often these companies may be valuable, but without the right planning and value acceleration, owners will not be able to convert that value into cash to fund their future lifestyle and goals. Here’s an even starker fact: only 20% to 30% of the businesses that go to market actually sell. For anyone who has spent years building a business and hopes to retire off the proceeds of its sale, that should be a wake up call.
What Is Value Acceleration?
Value acceleration is the process of increasing – sometimes rapidly increasing – the value of a business over time by choosing to implement strategies that strengthen the company, increase profitability, and make it more attractive to buyers when it eventually goes for sale.
Business valuation is often calculated using an income metric such as earnings before interest, taxes, depreciation, and amortization, or EBITDA and a valuation pricing multiple. While every business owner seeks to increase profit, the larger goal for anyone planning retirement is to increase value. Profitability can be temporary. Buyers instinctively gravitate to value. They understand that a valuable business:
- Is not dependent on its owner
- Has a good management team in place that will transition with the business
- Has a diverse customer base
- Creates sustainable, recurring revenue
- Maintains clean, solid finances
These are indicators of value that a company must cultivate in order to generate interest from buyers and guarantee a good sale price when the time for the owner to exit the business comes.
At Prometis Partners we work with our clients to evaluate the value of their companies, work on installing value drivers, and move smoothly through the exit planning process towards an eventual business transition they both control and benefit from.