Mega Millions Winner? One Does Not Need A Lottery Ticket!

A Valuation and Exit Strategy Plan will bring a Jackpot to the private company owner! According to a survey, done by The Mass Mutual Financial Group and The Raymond Institute, only 19 percent of family/privately owned companies acknowledge doing any estate planning. Additionally, the report goes on to say that only 62% of the significant stockholders have any knowledge of the senior management/majority owners' asset transfer or sale intentions. Another fact determined by the study is that 55 percent of private company owners do not acquire regular formal evaluations of the firm. The reader, connecting through the above link, can review the study in its entirety.

While the private company is the backbone of the American economy and the largest employer in the United States (US), only 20% plan their exit from the business. One might say, "so what?" What is the consequence of the absence of exit planning strategies within the private company/private capital segment of the US economy?

As with all circumstances where deductive reasoning can be applied, a clear conclusion can be garnered. When one applies logic to this large percentage of private companies that do not plan their exit and their economic future, their collective lack of action makes no sense, nothing adds up to support this behavior.

Inductive reasoning may hold the answer. That is to say, in the private company/capital domain, where the popular culture character of the rugged individualist lives, logic is not the guiding factor. One possibility may be that an owner believes that without his/her company their identity dissolves. They may subscribe to the emotional idea that without there hands on the helm of a company they will be minimized in some form or fashion. Further, while few in the rugged individualist culture of the US admit it, fear of the unknown may be consciously or subconsciously driving the lack of making the decision to plan an exit. While this author does not have the answer to the question of why so few private company owners strategically plan their exit, he can attest to the consequence of this illogical behavior.

The aftereffect of not planning an exit is that the private company owner will loose asset value. Pure and simple, the marketplace and those who know these statistics professionally prey on these very companies. The word professionally is used because there is a segment of brilliant practitioners whose job is to seek opportunities where the owner of a middle market company will surrender the helm at a reduced value.

The only safety a private company owner has is to accept the idea that exit planning strategies are the only path that will lead to appropriate asset values, terms and conditions when the decision has been made to sell or dramatically refinance.

This author also believes that the rugged individualist private company owner, unlike the Lone Ranger who had Tonto to do his bidding, does not have the professional network to assist in protecting the assets by means of an appropriate and strategic exit plan. The owner needs a Tonto because he/she will have to continue to apply their proven expertise in maintaining and growing the company.

While the question of why private company owners do not plan goes unanswered, one can be sure that as long as this illogical practice continues millions of dollars will be left on the table for both strategic and financial buyers to gouge themselves. The odds of realizing maximum price, terms and conditions in a liquidity event are reduced without the appropriate plan in place. If you have no exit plan, be prepared to forfeit millions of dollars in asset value.

Mega Millions Winner? One does not need a lottery ticket! A Valuation and Exit Strategy Plan will bring a Jackpot to the private company owner!

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