No one likes to think about all the what-if scenarios in life. Most business owners have no plan for exiting their business at all, much less exiting in the face of conflict or tragedy. As you finalize your business goals for next year, make time to protect your business against the five dismal D’s.
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.
I see business owners approach the sale of their business with one of two mentalities. It’s either maximize my value, or just get me out at a fair price. There’s no right or wrong, but there are pros and cons to each approach.
We’re working with one seller, a younger business owner, who wants to run through the whole process and do everything he can to get the most out of his company. I always say these sellers want to go to sleep at night knowing they didn’t leave any money on the table.
When a business owner says it’s time to sell, one of the first questions I ask is, “What’s your timeframe? When do you want to be out?” And the answer I hear most often is, “Yesterday.”
That is a problem. Most business owners underestimate the time it takes to sell and exit their business. It’s not like selling a house, and you don’t get to hand over the keys and walk away on closing day.
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.
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.
I just met with a business leader who’s starting to explore his options around selling part of his company. Based here in Northeast Wisconsin, this business is considered an industry leader, well within the top five in its market throughout the U.S.
Because of the company’s size and success, finding a buyer won’t be the tough part. It’s finding the right fit and negotiating for the best terms that will add complexity.