Like 75% of business owners who would like to exit their business within the next ten years, Lee and his wife decided to sell their business Redfern Concrete Construction to their son and enjoy a retired life. Struggling with concerns about the sale price and placing a cumbersome financial burden on their son, the couple engaged the OneAccord team for help, leading to an end sale price that was 70 percent higher than what we started with.
The Three Legs of the Stool theory identifies Business, Personal, and Financial as the three key elements in defining readiness. A business owner is ready only when their personal, financial, and business goals are defined and aligned. Zooming into the detailed preparation steps, our experience, along with research and surveys, has helped us conclude that successfully written personal plans and business transition plans are two major benchmarks validating the abstract concept of “readiness”.
In the past decade, we were glad to see surveys reporting business owners’ rising pursuit and awareness of transition preparation. With 49% of business owners wanting to exit within the next 5 years and 75% within the next 10 years, 4.5 million privately held businesses may transition within the next 10 years representing nearly $14 trillion of business wealth at stake (EPI National State of Owner Readiness Report, 2023). With the popularization of transition preparation awareness, 68% of respondents in the EPI national survey indicated that they were above average when it came to their personal financial readiness and 47% responded feeling best-in-class or better.
However, the status quo is much less optimistic when we zoom into the individual businesses and owners’ situations. While 70% of business owners do consider succession and exit strategy planning important, even in countries like the USA, where education on transition is comparatively higher than other countries, less than 20-30% are actually ready to sell their businesses. 70% of business owners surveyed in 2023 confessed to having no formal estate plan, a pivotal component of a personal financial strategy. Even among the respondents who claimed to have estate plans, over 60% of them admitted the flaws and incompleteness in their current estate plans.
Interestingly, in terms of owner’s business readiness, a similar cognitive dissonance was again observed by the survey: though the 2023 business owner respondent group indicated a high level of business readiness, only 42% of the respondents indicated they had a written and formal transition plan for their company.
Clearly, there is a gap between most business owners’ spontaneous active preparation toward transition and their practical progress toward a successful transition.
More business owners are driven by the need to fund retirement, especially among small businesses. However, relying heavily on family succession, only 30% of these millions of small businesses survived from the first to the second generation, and only 12% from the second to the third generation, largely due to obstacles created by emotional attachments, family issues such as sibling rivalries, and conflicting opinions on leadership roles or business structures. In these situations, neutral advisory and professional coordination are required to make sure that, like in Lee and his family case, each family member gets their subjective realized by bringing each party into alignment.
Besides the specific situation of family succession, professional transition teams kick in businesses from diverse industries. When owners lack education or awareness of preparation for business transition, they are limited in the ability to project their unique visions into tangible plans and progress. Underlying each successful business transition, the business owner’s knowledge of how to position their products or services to the market, make their products or services attractive, and even find their unique niche is the first “must”. Business transition professionals like us, on the other hand, know exactly how to position owners’ businesses, make them attractive, and complete the planning and procedures of a transition by being the second “must”. For businesses looking to transition, having only the first half of the preparation is a “bare minimum”. The OneAccord team has decades of experience positioning businesses to bring them to their maximum value, asking “Are the procedures good so that new people can step in?” and “Do we get good people on the team?”, help bridging the gap between businesses and professionals’ specialties.
In fact, like the many cases that OneAccord has dealt with, business owners’ industry knowledge and financial objectives are maximized when the professional team clears
out every blind spot with their expertise in business operation and management. When EZ Lube was purchased by Goldman Sachs, its CEO identified frontline technicians’ training as the key to boost their slowly growing sales. Yet, after assessing the situation, the OneAccord team found the solution lay with management training of the district managers (DMs). Realizing how the employees were not functioning as a team, our members facilitated training, activities, and meetings to build the management structure and synergy. After just five months of our member coming on board, EZ Lube reached their sales goals that were originally set for a timeline of 1.5 years. Fueled by the “team first” value, EZ Lube took only four months to become a year ahead of schedule that Goldman Sachs has formulated for them.
A third obstacle impeding owners from getting prepared for transitioning was proven to be even knottier: 47% of owners expecting to retire in the next five years do not have a successor. With neither a broader vision of the market nor the professional disciplines in resolving the issues, many business owners are stuck at the first step toward forming their personal and business plans. Awareness, education, or even planning will have no effect when the current business owners are unable to find successors to continue running their businesses. The most direct solution is the intervention of professional institutions to help these business owners position their businesses and connect to potential buyers that can be beyond these owners’ vision or network. In such situations, business owners will suffer from much higher time and financial costs without professional assistances.
Again, the best and most effective solution would be reaching out to external, professional assistance in transition planning and execution. Professionals in business exit and transitioning can greatly help the businesses with their expertise and much larger pools of potential individuals or companies who would be willing to work alongside the existing business owners and fill in the gaps of successors.
Lastly, zooming out to the big picture of business transition’s status quo, the 2023 EPI report estimates that only 30% of small businesses will successfully sell, leaving 70% of small businesses without a buyer or successful plan for what happens next. Rooted within the soil of a gradual population of pursuit and awareness of business transition, business owners’ outreach to professional transition teams will shelter them from potential blind spots, limitations in visions and resources, and conflicts between stakeholder parties.
Before First Aid Only approached OneAccord, the company was stuck with years of little revenue growth and an unmaximized EBITDA margin.
OneAccord conducted a discovery diagnostic and created a Client Success Plan, which provided actionable steps to course correct. Eventually, the owner exited with a 7X EBITDA Valuation! This immense result was achieved by First Aid Only’s faith in and agreement with practicing our 2-Year Client Success Plan. Along with the execution of the 2-year plan, OneAccord constructed new company roles and SOPs to augment revenue growth and margin. More specifically, OneAccord helped the company to augment staff, increase sales and margin, improve operations, reduce owner dependency, prepare for exit, and enhance enterprise value. Having gone through the active interactions and coordination on running the 2-year plan, the owners were able to step away from the business to pursue their next entrepreneurial ventures with a successful exit. OneAccord continued working with the buyer on this company for 18 months after the transaction.
Redfern Concrete Construction is a contractor in Portland, Oregon specializing in commercial concrete construction — specifically, post tension slabs and concrete tip-up wall construction.
Lee Redfern started the company more than 50 years ago from nothing. He weathered the recession of 2008, paid off all debt incurred during that time, earned a very strong reputation in the Portland construction market, and is widely regarded as a man of strong integrity. His company is in the top 20 percent of concrete contractors in the Portland market.
Lee and his wife were ready to sell the business and enjoy a retired life. Lee was concerned about having enough money to fund their retired years and didn’t want to leave any money on the table from what he knew was his most valuable asset — his business.
The Redferns wanted to sell to their son, Torey. And while reaping the profit from what they had built for so long was important, they didn’t want to place a cumbersome financial burden on their son that could compromise his success in running the business.
Redfern engaged OneAccord to conduct a complete assessment of the business that would lead to the development of a roadmap for selling the company.
Lee was hesitant to open up to any outside person about his personal financial portfolio, and wasn’t eager to have outside eyes prying into the innermost workings of the business he had singlehandedly grown from the ground up.
We started by getting to know the owner and his son and established a basis of trust.
Then we asked each key player to separately define their ideal objectives relative to the sale of the business. Once we had these objectives clearly defined, we used them to negotiate a set of shared objectives that brought each party into alignment with the others and cleared the way for forward movement toward structuring the sale.
Lee agreed to allow us to bring in a CPA and an attorney to assess financial approaches to the sale that would optimize the benefit for both Lee and Torey. During this process, we realized that the entire transaction was heavily influenced by the retirement needs of the father balanced against his and his wife’s financial portfolio.
Lee and his wife agreed to share their current financial portfolio with a wealth adviser, which allowed us to further restructure and finalize a transaction approach that created a win for all parties.
The end result was a plan that increased the sale price by 70 percent, reduced taxes on the proceeds and improved the financial portfolio and monthly retirement income for Lee and his wife. Lee’s after-tax income was even higher due to considerable tax savings structured within the transaction and the financial burden on their son was minimized, improving the likelihood of his success running the business.
Ownership of the company successfully transferred to Torey, who will carry on the Redfern legacy. We established a stock pool to give primary ownership of the company to the son, 30 percent to a key employee financed through sweat equity and a 10 percent pool for future employees. Finally, total payments from the company to Lee were structured so that the financial burden to the company is manageable from both cashflow and profitability standpoints.
To enhance their valuation and attractiveness to investors and potential buyers, companies should focus on improving operational efficiency, demonstrating consistent growth, and strengthening their competitive position. These strategies collectively improve financial performance and market perception, driving higher EBITDA multiples and ultimately increasing the company’s overall valuation. However, as the owner of a small private company, you face unique risks that can significantly impact this value. Key risks include:
Owner Dependency: Can reduce value by 10-30%.
Customer Concentration: Dependence on a few customers.
Sales Pipeline Strength: Stability and predictability of future sales.
Supply Chain Risk: Concentrations and other risks in accessing much needed components or inventory.
Financial Statement Condition: Accuracy and completeness of financial records.
Management Team Depth: Experience and capability of the management team.
Operational Inefficiencies: Lost productivity.
Overcoming Obstacles.
Without addressing these risks, your business, dependent on you might see a 20% discount. Additional risk factors can further reduce enterprise value. For sellers, this often means shifting a portion of the payment to an earn-out, adding risk to your total payout as future payments will be contingent on post-sale performance and requiring you to stay in the business longer than you want. Now, interested in learning more about maximizing your business’s value and transition preparation? Contact us using the link below for a complimentary review and let us walk you through the key to fully realizing your personal, business, and financial goals!
In Their Words Not Ours – Meet a Few Past Clients Who Love What We Have Done for Them.
