For most business owners managing a company is all about managing risk…calculated risk. And, when a business owner begins the selling process, it’s also about managing risk. As a veteran of the middle-market M&A industry, I’ve had the good fortune to work with many private business owners as they begin the selling process. If I had only one piece of professional advice to impart it would be this: “Holding out for a better price doesn’t always lead to a larger bank balance in the end.” Too many times during the past five years business owners I’ve worked with have fallen into the timing trap. When their businesses were booming and the economy was robust, they decided to delay a sale or partial sale in the hopes that by waiting, they would be able to cash out at a higher price. “I’ll just wait a couple more years, and then I’ll sell.” That was a risk they were willing to take. For most of the “waiters”, that did not happen. When the recession hit full force, many of those businesses simply didn’t make it or their businesses retracted significantly. The cash out was zero or greatly reduced making a sale highly undesirable.
For those businesses that survived, 2012 may be the first year that sales, revenues and profits are trending up. If that is the case and you are still “waiting” to begin your next life phase…stop waiting. There is no crystal ball and no way to predict what the future holds. Many variables that you do not control can derail the best laid plans: health and family, industry changes, and changes in capital gains rates, to name a few. Maybe it’s time to sell? Or, maybe it’s time for a partial sale, to take something off the table and hedge your bet. By selling a 70% stake in your company now to a larger financial partner, you leave open the opportunity to take that second bite of the apple and potentially make equally as much when the additional 30% is sold at some point in the future. It’s truly all about managing the risk.
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