How to factor in all the risks in timing the selling of your business
Don’t let your opportunity to sell fly away
David was never known as someone who had
trouble making decisions, but here he was, swinging in the breeze like a wind
chime about whether or not to sell his company.
He started it from scratch 32 years ago, and with slow – though sometimes
tumultuous – progress, he grew it to be a solid firm with eight employees, a
consistent and growing clientele, and a dependable source of income for his
family.
David had lots of reasons to sell. He still had ideas about what he
wanted to do with the rest of his life while he still had the health and energy
to act on them. His wife was keen on travelling, and although he’d
managed to take a vacation every year, it wasn’t the same thing as really
stepping away from all the pressures that are a normal part of a successful
enterprise. It was a weight he had carried for many years, and his
shoulders loosened up at the mere thought of releasing it. He wanted out.
So, he met with a business broker who worked with him to determine the
business’s most probable selling price. He wouldn’t be walking away from
the sale with as much as he first thought – at least not outright, since he’d
likely need to wait for part of the purchase price in the form of a repaid loan
from the buyer. It was one aspect of selling he hadn’t accounted
for. He knew he’d get a good return on his money, though, and the broker
was confident she’d be able to find the right buyer to look after the staff and
customers with the same care he’d shown them.
He left the meeting feeling pretty good about his decision to sell and with a
likely date for taking the business to market. He’d earned it.
And yet – three days later – his best friend, his accountant, and his lawyer
all were urging him to put on the brakes. They reminded him of all he’d
put into the business. Don’t you want more? Can’t you do
better? How do you know you won’t be left holding the bag?
Suddenly, David got cold feet.
Considering all the risks
David’s story plays out all the time. All the right elements are in place
for the owner to sell, but then emotion takes over. Things grind to a
standstill. The attachment to the business and the uncertainty about what
lies ahead rise up and short-circuit reason.
For a balanced risk assessment, the owner needs to evaluate not only the risks
of selling. They need to seriously consider the risks of not
selling. Ours is a world of rapid change where anything can weaken a
negotiation position:
– a market downturn
– the loss of a key employee
– a new competitor
– changes in regulations
– an economic downturn
– a change in interest rates
– a change in occupancy cost
– an equipment breakdown and/or capital expenditure requirement
– a disruptive technology
– demographic changes
But external pressures aren’t the only concerns. The owner’s passion and
energy level decline, or poor health or an accident force a decision when
one is least prepared. It happens all too often. The owner has to
take a prolonged time off and the business suffers in their absence.
Suddenly, the company’s best days are behind it. In a worst-case scenario,
it could mean closed doors and employees out of work.
The time to sell is when the owner is ready, the business is ready, and
the market is ready
Most business owners wait too long to start thinking about the transition, and
as a result they end up selling their life-long effort for less than they could
have if they had planned things earlier. It helps and hurts nothing
to start the process sooner than you think you should and keep the eventual
sale in mind before the sale is ready to happen.
A professional M&A advisor’s role is to evaluate a client’s situation,
provide professional guidance, educate and protect them, and serve their
interests. When we produce a report of the most probable selling price
for a business, we simultaneously provide recommendations on timing for the
sale. Sometimes it’s better to wait and implement strategies to increase
the value proposition, and at others it’s best to go forward with the sale
right away. You can tap our experience to understand not only which way
the wind is blowing, but what it means when it blows that direction. In
this manner, we are able to help you make the best strategic decision that is
optimal for your long-term interest.
If you, your business, and the market have reached a point of readiness,
don’t risk your largest investment on an uninformed opinion. You want the
sale to be managed as expediently and profitably as possible. Spend some
time with an experienced and qualified M&A advisor who will be glad to
answer questions you have. In this private and confidential interview, an
experienced M&A advisor will provide insights that can help you determine
if your business is ready to sell and if your sales expectations are
realistic.
In this way, you will be considering all the risks involved, whether risks to
selling, or risks to not selling.
About the author: Greg Kells is President, Sunbelt Canada, Ottawa, Canada. He is a frequent author, speaker and advisor on the subject of buying or selling a business.
If you know of someone who’s thinking of selling or buying a business, who might benefit from a complimentary, confidential, consultation, have them contact me directly at 813.299.7862, or mertel@transworldma.com
Mike Ertel, CBI, M&AMI, CM&AA
Managing Director, Transworld M&A Advisors
©2019 J. Michael Ertel PA