One of the first steps in selling your business is to have your business intermediary complete a valuation of your company. On occasion, after a valuation is provided, the business owner will ask, “Why sell my business if I can make what’s offered in 3-4 years?”. An example of this would be a business that has EBITDA (earnings before interest, taxes, depreciation and amortization) at $2,000,000 with a multiple of 4. Their value is $8,000,000. In 4 years the business owner would make what a buyer is willing to pay them to sell.
When I hear this question, my response is, “if you are willing and able to own your business for 4 years, then you just might want to stick with it”. Here are the questions you need to ask yourself to determine if you should sell now or later:
Are you burnt out?
Most owners are ready to sell because they need to move on. They are burnt out. Yes, it’s possible to run your business for 4 more years, yet if the passion is not there you may have problems such as keeping key employees on board, creatively offering new products or services, and maintaining market share. After 4 years of issues like these, your value may drop considerably. If you are burnt out, I believe it’s best to sell.
What happens if there is a downturn in the economy?
The economy is on a historic ride with low inflation, low unemployment and low interest rates while the stock market continues to climb. We all know there is a likely downturn around the corner. When selling your business, you want to sell on top with three years of strong financials showing continual growth. If you hold on to your business and there is an economic downturn that negatively affects your financials, you may not get the price you desire for your company. It usually takes six months to a year to sell a business, so you need to make sure your timing is right.
What about a new competitor coming to town?
Various industries are currently experiencing consolidation. Should a big player begin to compete in your space, you will need to aggressively protect your business in order to prevent a loss of market share. If you are burnt out and ready to move on, it will be very difficult to continue to successfully own your business (and coast) with a new competitor in town. You will need to be on your “A” game to take on this new competitor.
Are you prepared to continue to experience the exposure and liabilities that comes with business ownership?
When you own a business, you are vulnerable to the various liabilities that come with it, such as personal guarantees, lawsuits, debt, and theft. These risks are all part of owning a business. If you continue to own your business for 4 more years, you will continue to expose yourself to these potential liabilities. You want to make sure you are comfortable with this.
Owning a business is extremely rewarding; but there comes a time when an owner is ready to sell. If an owner plans properly, they will see the fruits of their labor pay off the day they sell, but if an owner holds onto their business too long, they may see nothing. Statistically, only 25% of businesses that go to market actually sell; the rest are taken off the market, continue to operate or go out of business. Timing is everything when you sell your business, so make sure you have thought through this important question: What is the Downside to Holding onto My Business too Long?
This article was written by Sam Thompson. Sam is the president and owner of Transitions In Business, a Minnesota based M&A firm that specializes in selling healthcare, business to business, transportation, manufacturing, distribution and IT companies. Sam is a Merger and Acquisition Master Intermediary (M&AMI) and a Certified Business Intermediary who has successfully guided countless business owners through the sale or merger of their company. Prior to becoming an intermediary, Sam was a successful CEO and business owner for 29 years before selling his $16 million business.