InSight

Exit and Growth Strategies for Middle Market Businesses

How Much Runway is Left to Sell Your Business?

By John Hammett | May 07, 2014

Airplane RunwayI am often hired to help owners sell their companies at the end of their careers. These people are in their 50s and 60s and they are ready to get a pile of cash, invest it, and live a risk-free life without worry.

Private company ownership is inherently risky. Value can be disrupted by things like changes in interest rates, loss of a big customer, loss of an important supplier, departure of key employees, government regulation, international affairs, availability of bank loans, and many others.

When I meet with owners who are thinking of selling in the future, I often talk about their personal “runway”. That means, when something happens to drop your company’s earnings, how much time do you have for the company to recover back to the value you had before? The next, more important question is “Is that longer than you were planning on working?”

I once worked with a company owner who decided to sell when he was 65 years old. That happened to be right before the 2008 recession. We took his company to market in early 2008 before the downturn, but things happened too fast to sell his company before his sales eroded. He is 71 years old now and he still owns a company worth much less than it was in the year before he was 65 years old.

For company owners over 50 years old, their runway for recovery gets shorter every year. The smart decision is always to sell when the history is clean and the future is clear, even if it is before some arbitrary date. The downside is just too great.

Financier Bernard Baruch said “I made all my money by selling too soon.” I know that he’s right.

Posted by John Hammett.

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