Research Shows Entrepreneurs Are Motivated to Exit Their Businesses, But Confused About Options by:Richard Jackim

Despite confusion about exit strategies, 47 percent of middle-market business owners

55 years and older are interested in selling their businesses within the next three years, yet over 90 percent of them have not begun the planning process, according to research released today by MidCap Advisors, a leading middle market investment banking firm. Approximately 70 percent of those surveyed indicated they were interested in selling their business to a third party, 11 percent wanted to transfer their business to family members, and 9 percent indicated they were interested in selling to management or employees.

"It is troubling that the majority of owners prefer to sell to third parties, yet only 10% have begun the planning process," said John Poppe, Partner at MidCap Advisors and a Certified Exit Planning Advisor. "Owners of privately-held businesses have several different options to help them acheive their objectives. Unfortunately, by waiting until the last minute to make a decision, many business owners unintentionally eliminate some of their best opportunities."

The research revealed that 40% of business owners said that they were not aware of how or when to start the exit planning process. Another 30% of business owners said that they knew they should be developing an exit plan but lacked the time to do it.

Exit planning is a multidisciplinary process that asks and answers all of the business, personal, legal, tax, and financial questions involved in successfully exiting from a privately owned business. The MidCap Advisors survey underscores the importance of synchronizing the efforts of CPAs, attorneys, and financial advisors in advance of an exit to make sure these issues are addressed in an integrated and comprehensive manner. "Each of your advisors holds a piece of the puzzle. Exit planners and M&A advisors help coordinate the process and fit the pieces together to develop a comprehensive plan that they help manage and execute," said MidCap's John Poppe. "Start a dialogue with an investment banker who is trained in exit planning process. An early dialogue is not a commitment to sell, but it's very important for business owners to understand what options they have and what they can and should do while those options are available."

While many business owners are eager to sell, the research revealed that paying taxes and legal fees were top concerns of owners contemplating an exit. Over 23 percent of business owners said they felt the taxes and legal fees involved in the sales process were the most important factors in deciding to sell. According to Poppe, "Careful planning can dramaticallly reduce the money a business owner needs to pay in taxes and legal fees. Capital gain taxes and legal fees are typically highest when a business owner does little or no advanced planning".

Business owners who are waiting to sell cited many reasons, with 50 percent citing current market conditions, and 24 percent indicating they were waiting to build profits. "The correct timing is important," Poppe commented. "A good exit plan helps business owners understand how and when to time the markets by coordinating the business owner's personal goals, where the business is in its life-cycle, and overall market conditions."

The Exit Planning Institute conducted the research for MidCap Advisors by compiling and analyzing data from surveys done by MassMutual, PriceWaterHouseCoopers, ROCG, and Marquette University. The Exit Planning Institute administers the Certified Exit Planning Advisors or CEPA designation.

About the author

MidCap Advisors, LLC is a New York- based Merger and Acquisition (M&A) advisory firm focused on selling businesses with annual revenues between $5 million and $150 million. MidCap provides business owners with an integrated suite of corporate finance services including M&A, exit planning, business valuation, and capital raising services. To receive free tips on exit planning or selling your business, or to learn more visit www.http://midcapadvisors.com or call (212) 722-7290.

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