How Do I Know It’s Time To
Sell My Company?
A Ten Point Guide
By Robert Contaldo, Principal
Chicago Office, Corporate Finance Associates
Selling your business, which is perhaps your largest asset, can be
a difficult decision. It has been part of you and part of your
family. You have loved it — you have cursed it — you have nurtured
it. Unlike us, it can live for generations — though the time will
come when it must change hands.
Here are some points to consider when deciding whether or not it
is time to sell your business:
The Thrill Is Gone
There simply comes a time when a business owner does not care to
take the business any further. The battles and victories that at
one time were energizing have now lost their importance, and have
become somewhat boring and wearisome.
Your Marketplace Is Changing
Businesses that do not change will
ultimately fade away. Change
requires new market direction, new
equipment, new people, new technology,
and new capital investment.
Market changes can include more
complexities involving government
regulations, taxes, certification
requirements, customer reporting
requirements, foreign competition,
and customers seeking fewer suppliers
and lower costs. Many times
the direction is clear, but the mind,
body, and emotions are not willing
to embrace change.
Risk Becomes A Four Letter Word
With all that needs to be done in a
changing marketplace, business owners
cannot afford to be squeamish
when it comes to ongoing investment
in the company. When one
reaches the point of not making logical
investments in the company or
tends to count the debt rather than
the probable benefit, it might be time
to sell. Most business owners reach a
point where they are tired of “betting
the farm”, tired of personal guarantees,
and tired of meeting financing
requirements and covenants. There
comes a time when it makes sense to
“take some chips off the table.”
A Change Would Be Good For The Family
Many have
experienced the challenges
of a family run business. As
the succeeding generation grows
into personal and business maturity,
it may be time for a generational
transfer of ownership. A recapitalization
with a Private Equity Group
as a financial partner can allow the
founding shareholders to take the
lion’s share of the business value in
cash at closing, while the succeeding
generation reinvests (through a small
amount of the proceeds) for a large
share of the company going forward.
The company would also have access
to growth capital. How great would
it be to again have a family relationship
that is not encroached upon by
business?
- Unprecedented Seller’s Market
The three principal buyer groups
are Private Equity Groups, strategic
acquirers, and high net worth individuals.
- Private equity Groups have
become the new conglomerates
with over flowing levels of investment
capital. With thousands
of Private Equity Groups in the
United States and a like number
overseas, competition to buy companies
is fierce. Multiple offers
are the norm for even marginal
or smaller companies. Premiums
are being paid for companies as
demand exceeds supply.
- Strategic acquirers see growth
through acquisitions as the
preferred way to gain market
share quickly, add product lines,
augment human resources,
enhance management, and stay
competitive.
- High net worth individuals can
be worthy suitors. These individuals
bring significant personal
finances, outside private investment capital, experience,
contacts, and expertise to the mix.
The convergence of these three
types of buyers, along with a stable
economy, low interest rates, and
banks and other financial sources
flush with ready capital, have created
“The Perfect Storm” for sellers.
Unusual Financial Gain
Perhaps you have been
approached
by a bona fide buyer who is larger,
cash heavy, willing to overpay, and
inebriated with the desire to own
your company. (We can dream
can’t we?)
The Business Is Growing
Growing businesses reach
a point
where professional management
at a higher level is demanded. The
founder of the company is wise to
recognize that the large business
dynamic has thrust him into unfamiliar
territory, requiring personnel
changes, organizational upgrades
and a bigger and much different way
of thinking.
The Business Is Flat
If flat, declining or
inconsistent
financial performance characterizes
your business over the past several
years and you just cannot seem to
“crack the code”, let someone else
figure it out! A strategic buyer, or
an individual buyer with a dynamic
skill set, or a Private Equity Group
with more money and contacts
might hold the key.
Managing People Has Worn You Out
Do you long for
the time when you
need to only manage yourself? Are
employee issues, government regulations,
unions, medical insurance,
profit sharing, and retirement plans
driving you to the brink?
Personal Compelling Reasons
The reason for
considering selling
a business will generally transcend
the enterprise value of the business
(though not to minimize the value
component). The fundamental
checkpoint in considering the sale
of a business is this: “Does this
business stand in the way of doing
something else with my life?” Many
business owners wish to pursue a
new direction in life that satisfies
a greater personal or community
need.
All business owners experience all or some of these points from
time to time with varying intensity. When that trusted “gut”
feeling indicates more than a passing notion of selling, it may be
time to explore options. The reality is that more business owners
have said, “I wish I had sold sooner” than “I sold too soon.”
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