WHEN IS THE BEST TIME
TO SELL YOUR BUSINESS?
I
have heard off-the-cuff opinions such as:
- Ø Only when you get the highest Price.Ø I will not sell unless I get all cash.Ø Do not sell unless you know what you want to do next.Ø Everything is for sale… for the right price.Ø If it is a good business that makes money, then don't sell.
The
above answers just address the price and terms…but there is much more in a
business owner's decision to sell.
What is the
Opportunity Cost of Not Selling?
We
exist in a world of limited resources such as time, energy, talented people, and
capital. Consequently, the true cost of not selling is the outcome one could
have achieved from committing those same limited resources to a different
course of action. Said in a different way, there is only so much time, energy,
and capital available to a business owner at any particular point of time, and
those resources invested in a business are not available for him/her to use,
enjoy, or invest in other ways.
The
opportunity cost of being involved in your current Company might include giving
up:
Ø
Another
business venture or opportunity
Ø
Time
for rejuvenation and reflection
Ø
Friends,
family, and grandchildren
Ø
Diversification
of investments or reduced risk
Ø
New
challenges, intellectual stimulation, or education
Ø
Health,
travel, community involvement, spiritual service
Ø
Or,
any other opportunity that can not be pursued because of the demands of your
current Company.
The
opportunity cost is relevant only in terms of the life goals of the business
owner. When a business owner decides that the opportunity cost of owning
his/her Company is greater than the overall value (not just money) received
from owning the Company, it is time to seriously consider selling. Conversely,
a business owner should not sell if he/she finds the business provides the most
satisfying, enjoyable, and profitable way he/she can invest his/her time,
energy, and capital at the moment.
Many
business owners have been involved in their companies for so many years that
they have a difficult time envisioning what their life will be like after they
sell. Once they sell they are free to discover other opportunities. Not having
the freedom to discover alternatives is one of the opportunity costs of
business ownership.
Following
are three examples of what "Opportunity Cost" sounds like when spoken
by a business owner who should consider selling:
· Burn Out – "My Company has been
good to me. I am proud of it. I poured my life into it and for many years it
was very fulfilling and financially rewarding. For a while though, I have not
been having much fun and it has been boring. I know I could do more with the
Company, and it has lots of potential. However, I just do not want to put any
more energy into it. It is time to do something else with my life. I am not
sure what that should be, but I am sure I can figure it out, once I am not
preoccupied with this Company."
· Another Business Opportunity –
"My Company is going well and I could keep running it forever. But, it
takes lots of attention and distracts me from a different business venture,
with which I believe I can have even a greater success. It may seem foolish to
sell a good business, but I need to let go of this one in order to take hold of
the next one."
· Owner Skills – "My Company has
been successful, but based on my talents and experience; I have taken it as far
as I can. The business is well positioned, but it needs a person in charge with
different skills and ambitions. Both the Company and I would be better off if I
sold it to a buyer that could take the Company to the next level. Then I could
focus on what I do best, either working with the buyer, or moving on to a new
opportunity."
Opportunity
costs can be applied by Buyers also. Business buyers acquire Companies because
the company presents a more attractive opportunity than the alternative uses of
their resources.
How Much is
Enough?
No
matter how much you make, there is always someone with more. We see business
owners who persist in owning their business just because they want more money.
Meanwhile, 99% of the people make and have less money than they. We see their
"nose-to-the-grindstone" in their particular Company because:
Ø They are in Business
Ø They want more money
Ø A few years ago the Company was worth
more
Ø The market may be better in a few
years.
When
a business owner is passionate about his/her company, working for increased
profits is an energizing goal. However, sometimes business owners lose the
focus, intensity, and passion that they had when growing it. They then push
ahead day after day just because they believe they should use the business to
make money. They own great businesses, but as individuals they feel discouraged
and trapped.
Important
issues for business owners to address:
Ø Why are we making money? And why in
this business?
Ø Are we making money in a way that is
(still) personally and professional rewarding?
Ø Is making money with this Company the
highest and best use of our resources and abilities
ØRegardless
of whether you decide to sell now, answering these questions is key to tactical
and strategic planning, and developing an exit plan.
When is the
Best Time to Sell?
The
best time to sell is when you come to a decision that it is more compelling to
invest your time and capital into something other than your current Company. To
make that decision, understand that businesses sell for more when the business
is doing well, the economy is doing well, and financing is easy to obtain by
buyers. As a Merger & Acquisition
advisor, my role is not to convince business owners to sell their Companies. It
is to ask owners the insight-producing questions, such as these, to help
entrepreneurs clarify their thinking.
If
the result of your reflections is a decision not to sell, you can focus on
building your business with renewed commitment. If you decide it is time to
sell, my role as a Merger & Acquisition advisor is to help you through the
process so that you can move on to the next phase of your life.
If
you are interested in discussing your business objectives in confidence, we
welcome the chance to talk with you.
GBSH Consult is a global management
consulting firm proven in dealing with mergers and acquisitions. GBSH Consult
supports clients in making their deals successful as well providing analysis,
trends and recent M&A middle market transactions, deals and private equity
investment. For more information go to www.gbshconsult.com
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