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A business owner walked into our office a few months ago ready to retire.
On the surface, there wasn't much to worry about. He'd spent more than 20 years building a respected company. The phone rang consistently, customers kept coming back, and there was more work than the team could keep up with. He had five employees who had been with him for years and a reputation that he was proud of.
From his perspective, he'd done what every entrepreneur hopes to do. He'd built a successful business, worked hard, and finally reached the point where he was ready to slow down.
So, we completed the valuation….and the number came in well below what he expected. Worse, we had to tell him we didn't believe we could successfully sell the business.
Those are conversations we never enjoy having.
The business wasn't struggling. So, in his mind, what’s the problem? The problem was that the business and the owner had become almost impossible to separate.
The business depended almost entirely on him.
And, as we learned more, we discovered that two key employees planned to retire when he did. The employees who remained weren't cross-trained, and no one was prepared to step into a leadership role. That creates an even bigger problem. A buyer wouldn't just be purchasing a business. They'd be stepping into a role where every move depended on them all while trying to replace three of the people who knew the company best.
That's a difficult story to pitch to a buyer. It's even more difficult to convince a bank to lend on.
This is where a business owner’s advisory team can have a tremendous impact.
Most owners aren’t thinking about transferability while they’re busy running their companies. They’re thinking about customers, employees, cash flow, taxes and whatever problem needs their attention that day.
But you may see warning signs long before an exit is on the calendar.
Is the owner involved in nearly every important decision? Are customer relationships tied primarily to the owner? Is there a second layer of management? Are key employees nearing retirement? Are processes documented? Could the company continue operating successfully if the owner were unexpectedly gone for six months?
Those aren’t just operational questions. They’re questions that can eventually affect value, financing, and whether the business can be transferred at all.
We encourage owners to have their businesses valued three to five years before they expect to exit.
The purpose isn’t simply to tell them what the company is worth today. A good valuation can help identify why the business is worth what it is and where opportunities exist to increase value and reduce risk before a sale.
That time matters.
Developing leaders, cross-training employees, documenting processes and reducing owner dependence aren’t projects that can always be completed six months before retirement. They often take years.
As advisors, we don’t necessarily need to know exactly when a client plans to sell to begin asking good questions. Sometimes a simple conversation about what the business would look like without them can uncover issues that deserve attention now.
And when those conversations happen early enough, the owner has something they won’t have later: options.
If you have a client who is beginning to think about retirement, succession, or what their business may ultimately be worth, we’re always happy to be a resource. Sometimes the most valuable valuation is the one completed years before the owner is ready to sell.
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