If you were to ask most business owners this question they would say, “When I am ready.” Not a very scientific approach for the wealth generating machine you have created. But let’s assume for the sake of argument you decide you are within 5 years of that decision. Here are three indicators that let you know it is time to sell and when used correctly they may even raise the value of you company:
- Sell when the predetermined financial goal is attained: If you have been approached by a buyer, the closing table is not the time to find out your future lifestyle needs can’t be properly funded. Avoid being swayed by offers that don’t meet your long term needs. Get with your M&A advisor and other financial advisors to determine when enough is enough. When you can secure the lifestyle you wish for you and your family, that is the time to sell. Owners tend to think that when they are doing well, it will last forever and forget that what goes up, can go down.
- When your team is ready: When you have your team running your company and they are able to articulate a vision for growth that is strategic you have an optimum situation for equity appreciation. Buyers like to be presented a strategy for growth. Show a path to a better company and value is usually created.
- Sell when the business is doing well: Nothing creates value like good performance. Most industries cycle and so do businesses. If you are in the drilling sector today you are probably wishing, you had sold during the last run up in the market. Hind sight is always 20/20. Good performance is exciting for buyers. Waiting ‘til you or the industry are going downhill introduces risk to the equation. Risk reduces value.
All of these strategies for timing and increasing company value require an understanding of your long terms goals in strategic planning. Selling your company is way too important to do on somebody else’s terms. You must do it on your own terms. Remember when swapping out your goose that has laid the golden eggs, you want to be assured all of the future goals can be met.
Sponsored in part by:
George Walden is a Managing Director and Principal in Corporate Finance Associates’ Houston office with twenty-five years experience as a middle-market investment banker. George is a member of CFA’s equipment industry practice group and an expert in the precision machining industry with special emphasis on manual machining, CNC precision machining, and gun drilling services and has been responsible for several industry-leading transactions. You can learn more about George HERE.