Your business owner friend is boasting about how they got a 10 multiple on the sale of their company. Fact or fiction? For most companies, this would be fiction. (Or, to give your friend the benefit of the doubt, perhaps it’s a multiple of net income rather than the more standard EBITDA.)
After selling businesses now for 18 years, there’s still one stumbling block that takes me by surprise and hits hard, and that’s seller’s remorse.
On average, I see it every two or three years – a seller goes through the whole process and then ultimately can’t pull the trigger. The last time it happened was April of 2015.
I recently came across a Warren Buffet quote that struck me: “If past history was all there was to the game, the richest people would be librarians.” Don’t I wish that were true. My mom was a teacher for 30 years, and she knew a lot about history.
When it comes to buying a business, past performance is important. As a buyer, you’ll typically look at the last three years of financials, with a particular focus on the trailing twelve months. But you can’t get so tied up in historical numbers that you forget to ask the right questions about future performance.
Succession planning is a real buzzword right now. With the large number of Boomers set to retire, everyone is talking about how to help them make it happen. Unfortunately, many business owners are having these conversations far too late.
If business owners just did one thing, one thing that I believe would make their work more enjoyable and more profitable, it would be to set a succession plan from day one of starting or buying a company.
Timing is everything when selling a business. Whether it be winning in sports, finding your spouse, starting a company and ultimately selling it, when you do something can be every bit as important as how you do it.
Most first-time business buyers start the acquisition process with an ‘I’ll know it when I see it’ strategy. Both individuals and existing business owners come to us with this approach.
It won’t surprise you to hear, however, that it’s not a good use of our time to engage in a sales scenario destined to go like this: “How about this business?” No. “How about this?” No. “This?” No, that’s not right either.
Too often, I hear from business owners who “vacation” with their family, only to stay back in the hotel glued to a computer or phone while their spouse and kids have fun without them.
But working harder isn’t necessarily a good thing, at least not long-term. By setting boundaries and finding the right work-life balance, I’m able to bring more energy and focus to my work. It makes me a better leader to my employees and a better advisor to my clients.
Spring break is close ahead, and as I prepare to take some time off with my family I’m remembering several years ago when a vacation like this was harder to come by. But as my team and company have continued to evolve and mature, I’m able to spend more time away from the office.
Taking a break benefits both you and your team. You want to build a business that can operate without you. Sometimes that means you need to step away so your people have room to stretch and take on new roles.
If you have to be on the phone all the time, constantly checking in and working on vacation, you may actually be hurting the value of your business. A business that is overly-dependent on the owner is not as attractive to a potential buyer. take on new roles.
When it comes to selling your business, you hang some of those stars in the sky on your own, by building up sales, minimizing risk, and developing a strong leadership team. But other stars must line up on their own, due to market forces you can’t control.
Timing is everything in the M&A market, and in many cases things you can’t control will impact your value more than those you can. Here’s what I mean: