Having an exit strategy when you start a business makes it that much easier to execute rational and informed decisions when you want to get out. But the UBS (NYSE: UBS) Q1 Investor Watch Report, “Who’s the boss?” reveals 48 percent of business owners don’t have a formal exit strategy.
This is the 22-second edition of the quarterly survey, and this time around it is looking at how investors feel about business ownership. The survey also explores the exit strategy of business owners, including selling their company and leaving it to their heirs.
In the report, UBS points out the majority of business owners don’t have a full understanding of what takes place in the selling of a business. It identifies a knowledge gap for the 75 percent of owners who believe they can sell their business in a year or less. This is on top of the 58 percent who have never had their business formally appraised, and the 48 percent without exit strategies.
Stewart Kesmodel, Head of Global Family Office, Americas for UBS Global Wealth Management, explained the challenge of selling a business this way in the press release. He said, “Selling a business successfully requires a great deal of planning, which owners often underestimate. Before pursuing a sale, it is important for business owners to not only have a view on the value of their business to potential buyers, but also an understanding of how that price applies to their personal needs post-transaction.”
In the survey, 1,085 of the 2,245 high net worth investor were identified as business owners (770 current/315 former). Their business had at least one employee and $250k in annual revenue.
Key Business Exit Strategy Findings
Selling the business is the preferred strategy of 52 percent of the respondents, which 41 percent plan to do within five years. Another 20 percent said they plan to leave it to family, 18 percent are going to close the business, and 10 percent don’t know.
As to the reason for leaving the business, 65 percent said it was a good time to sell and they are ready to retire, while 49 percent indicated they are looking to find a work-life balance.
So how do the heirs feel about inheriting a business?
More than 4 in 5 or 82 percent rather have the money from the sale of the business, and only 18 percent said they wanted the business. This is probably why 89 percent of owners said they won’t pass their business on because family members are not interested. Lack of qualification and wanting a family member to take another career path was sated by 21 and 9 percent of the respondents respectively.
Takeaway from the UBS Survey
Plan early with different exit strategies in mind. This will allow you the flexibility you need to get the most out of your business, whether you sell it, pass it on to your family, or have someone else manage it for you.
You can take a look at the rest of the data here and the partial infographic below.