Recognize risk of ‘just one more’
August 1, 2015
By Scott Bushkie, CBI, M&AMI
Cornerstone Business Services, Inc.
Timing is everything. Whether it be winning in sports, finding your spouse, starting a company and ultimately selling it, when you do something can be every bit as important as how you do it.
I’ve heard many stories from business owners regretting their own woulda coulda shoulda. “I should have sold in the late 90s. I should have pulled the trigger in 2007 or 2008.” And a few years from now I will hear people say, “I should have sold in 2013 or ’14.”
But like many sellers before them, many of today’s business owners are planning to hold on for “just one more year.” It reminds me of a story another Midwest M&A firm shared with me that went something like this:
It was 2008 and the client was 64 years old. He owned a successful services company with a strong record of growth. He was looking into a sale because he was ready to cash out and move to Florida.
After analysis, his M&A advisors believed they could deliver multiple buyers at strong values. The client agreed that the value range exceeded his needs, but decided to hold off.
He was working on a big program that would make 2008 his best year ever. He wanted that year on the books so he could get an even bigger value.
Today he’s 68 and still owns his company. Instead of a record year, 2008 turned into one of his worst. Now he’s trying to decide if he wants to sell or wait several more years for the value to recover.
It hurts to hear stories like that. Unfortunately, there’s always risk to holding on to a business. But as entrepreneurs, we’re eternal optimists. We think the glass is half full and business will only get better, its just in our DNA, otherwise most of us would probably never have gone into business for ourselves.
The ideal time to sell is when business is good, the M&A market is hot and you do not have to sell. You get to go out on your own terms, not someone else’s terms dictated to you. Make a regular habit of analyzing what you need to get out of the business (for a comfortable retirement, a new venture, or whatever’s next). Once the after tax proceeds from your business can fill that gap, it’s time to sell.
Talk to a qualified M&A advisor about current market conditions for your industry. A recent national IBBA survey points to a competitive sellers’ market, particularly for businesses valued over $5 million or those with $1 million or more in EBIDTA.
If recent history has taught us anything, it’s that the economy is volatile. And the looming mass of boomer retirements is just one of several factors likely to create significant near-term change.
Don’t wait to reach a milestone age. Make an informed decision and recognize that “just one more” always comes with risk.