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BNY Mellon, EPI launch owner readiness survey

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Middle-market business owners in New Jersey need to focus more on their exit plans, even if they are not looking to sell their businesses any time soon.

That’s the wake-up call the Exit Planning Institute and BNY Mellon Wealth Management hope to deliver as they conduct their State of Owner Readiness survey in New Jersey.

The survey aims to find out how many middle-market business owners are aware of what their business is worth and if they have a sound exit strategy. It also will check if they’re focused intangibles such as long-term customer relationships and the working culture of their businesses in addition to tangibles like cash flow, revenue and expenditures.

“It is very typical that a middle-market business owner really doesn’t understand the true value of their business,” EPI Vice President Scott Snider said.

EPI has performed a dozen readiness surveys in other states and select markets during the past year. Based on those surveys, most midsized business owners lag in planning exit strategies, Snider said.

“It is very typical that a middle-market business owner really doesn’t understand the true value of their business.”
Scott Snider, EPI vice president
Scott Snider,  vice president, EPI.
Scott Snider, vice president, EPI.

“Based on the state of owner readiness surveys we’ve conducted, typically when asked, ‘Do you understand the true value of your business?’ business owners are rating pretty low,” he said. “When we ask them if they have had a formal evaluation of their business in the last three years, the answer is almost always, ‘No.’”

The survey for New Jersey businesses is available at www.ownerreadiness.com, and the results should be published by the end of the summer. NJBIZ will report on the findings exclusively in September. EPI’s surveys around the country typically get 200 to 400 respondents, Snider said.

Tony Rogers, senior director of wealth management at BNY Mellon, is collaborating on the survey, which he said aims to create awareness among business owners and provide information to owners, wealth management advisors, accountants and M&A attorneys.

Rogers said intangible factors can have a big impact on business valuations and potentially could mean a company will sell, say, for a multiple of four times EBITDA (earnings before interest, taxes, depreciation and amortization) rather than six times EBITDA.

“It’s the intangible factors that are going to impact the value of a sale, because it’s often the most neglected area the business,” Rogers said. “The business owner usually hasn’t done the work ahead of the decision to sell the business or ahead of the unsolicited offer for the business. And they often find themselves in a deficit in terms of optimizing those intangibles and don’t realize how much they directly impact the value of the transaction.”

The survey results can educate mid-market business owners to know they must always have an exit strategy in mind, no matter businesses’ stage of growth, he said.

“We find a lot of times that business owners are working in their businesses and not necessarily on their businesses,” Rogers said. “They’re not necessarily tuned into the best way to have a successful exit, whatever that exit strategy may be. You have to start with the end in mind, meaning that you have to keep in mind that you’re going to exit this business one day, whether you die with your boots on or sell to a private equity investor.

“So you need to have a parallel work flow of the tangible and intangible items and, first and foremost, you need to have an awareness of stuff like, ‘I better strengthen my bench’ or have better documentation [of financial records],” he added. “Whatever it may be you have to have a discipline around that, and you need advisors to hold you to task and have you recognize and work on those intangible items.”

Snider said survey results help advisers understand a business from personal, business and financial sides.

He added: “How does the business look, how does the personal financial situation of the owner look, and do the owners truly understand what they want to do next in their life after they sell their business? At the end of the day the survey tells us how ready businesses are for transition, how prepared the owner is personally for transition and how attractive that business is in the current marketplace.”

The survey is also intended to encourage business owners to produce written plans on how they are going to exit their businesses early, Snider said. EPI’s survey results from other markets reveal the vast majority of business owners don’t have a written exit plan and a big percentage have no plan for transitioning their business.

“The big demographic overlay on that is that so many of these middle-market businesses are owned by baby boomers, so there’s going to be a huge amount of transitions that are going to be coming over the next decade because these baby boomers are now in their early- to mid-60s,” Snider said.

“Over the next 10 years, there will be a huge number of baby boomers looking to transition their businesses, and they need to be ready,” he continued. “So this is really about helping business owners identify who the advisers are that they can turn to help them with their transition.”

Snider encouraged business owners in the state to take a cue from the younger baby boomers, which EPI’s surveys have pegged as tending to be in their 50s.

“They tend to have a transition advisory team and a board of advisors that are planning an exit strategy,” he said.

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Vince Calio

Vince Calio


Vince Calio covers health care and manufacturing for NJBIZ. You can contact him at vcalio@njbiz.com.

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