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Capital Ideas for Private Business

Selling at the PEAK

4 Steps to Success

By Jay Carter, Principal
Charlotte Office, Corporate Finance Associates

I met recently with the owner of a very successful middle market manufacturing company. He is sixty-one years old, in good health and came to discuss exit options that may be available to him. After spending the last twenty-four years of his career starting and growing this business, he is now looking forward to spending less time at the office and more time enjoying his family's second home in the mountains of North Carolina.

He arrived at our offices five minutes early and appeared slightly uncomfortable. I invited him to sit down, which he did. Before I even had a chance to initiate a conversation, he hastily released the two questions that had been consuming his mind for over six months:

"I have been thinking about selling my business," he stated. "Is this a good time to sell it?" and without a pause, he continued, "or did I miss the [valuation] peak?"

These are both great questions. Fortunately, I have had a lot of practice answering them because they seem to be on the minds of every private business owner I've talked to lately. My answers are always the same: Maybe and Probably.

The owner countered (naturally), with, "That's what I was afraid of." He became restless and began rubbing the back of his neck with his right hand while drawing concentric circles across the top of his legal pad with the other. "So", he said, "if I've missed the peak, do you think I should continue running the business and wait for the market to come back?"

Another great question, but this time I needed a little more information before I could answer. So I asked him, "How long are you willing to wait for the market to come back?" He replied, "I don't know, maybe two or three years…but definitely not more than three."

Now I felt that we were getting somewhere. I had learned that the owner is concerned about the current market environment and he is disappointed that his business may be worth less today than it was a year ago. However, he seems willing to postpone his retirement plans in order to maximize the value of his company. At this point, the answer to just one more question would give me all of the information I needed to begin our discussion of exit options.

"Great," I said. "That seems very reasonable. My last question is: How much will your business will be worth three years from today?"

A predictable, but always uncomfortable silence was followed by, "Well…of course, that would depend on a lot of factors. The economy, our industry, the financial markets, fuel costs, foreign competition, government regulations, the strength of the dollar, income tax rates, raw materials costs, the labor market…all of those things would have an impact."

Thank you, business owner, once again for helping me make the point that I have spent many years of my investment banking career advocating to my clients:

  • There are many things that can impact the value of your business–most of which you can not control.

  • There is nothing dependable about the future value of your company.

  • The only value you can be sure of is the value of your business today.

I recommended to this business owner, as I do to most of my clients, that he use my four-step, P E A K approach to deciding if its time to sell your business. It is this simple:

  1. With the help of a good financial advisor (this may be your CPA, a Certified Financial Planner, or other qualified personal financial advisor), Project your future financial requirements, considering lifestyle requirements, taxes, assets and income outside of the business, dependants, etc.

  2. Next, Examine where your heart is by answering this question: If the numbers work out, am I really ready to sell my business? Without your emotional buy-in and commitment to selling your business, one thing is certain; it will not sell.

  3. Engage an experienced investment banker to help you Assess the true market value of your business. This is not a theoretical academic exercise. It is a professional, real world assessment of what buyers are willing to pay for your business today — and on what terms.

  4. Lastly, throughout the process, it is essential that you Keep the big picture in mind. For every successful business owner I have met, the decision to sell, and the subsequent sale process, is extremely difficult. It involves a lot of superfluous thought, effort and time from the owner. If a little "deal fatigue" sets in, it helps to review your original goals (both personal and financial) and remind yourself why you began the process in the first place.

If, after following these steps, you determine that you can realistically sell your business today at a valuation sufficient to meet all of your future financial needs, and you are also able to meet your other personal goals in the process, you are selling at the peak — the only peak that matters — your PEAK

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