Advice for Entrepreneurs, Pre-sale Planning, Human Capital Mgmt, Business Services, Selling a Business, Family Business, Professional Services, Partial Liquidity, Strategic Advisory
One of the most frequent questions I hear from business owners is “How do I know when it’s time to sell my business?” In my opinion, there are generally 4 factors to consider:
1. Business performance – what have you done lately and what does the future look like? You don’t want to make the mistake of waiting to sell until you’ve maximized the profits you’ve put into your pocket and can’t figure out where to get more growth. Remember that a buyer is buying the future, even though valuations are typically based on past performance. The buyer for your business needs to see future growth that will enable them to get a return on their investment, so the best time to sell is when you think you’re about 60% up the growth curve. You know the business better than anyone else, so if you can’t tell the buyer where the future growth is going to come from, don’t expect them to be able to figure it out for themselves.
2. Industry consolidation – is everyone playing musical chairs? You don’t want to be the last one left without a chair to sit upon. Look for my Semi-Annual Human Capital Management Industry Review, coming out in mid-May, for an update on transaction trends. Most industries go through waves of consolidation, and the human capital management sector is no different.
3. Preemptive buyers at the door – the one factor that drives a large portion of my clients to the negotiating table is when a buyer (strategic or private equity) comes knocking on their door. Oftentimes, until that happens, you might have said that your business is not for sale – but now the thought of dollar signs has you intrigued. However, the buyer knocking at your door is hoping to buy your business at a great price (for THEM) by avoiding a competitive situation. But you need to know that if there is one interested buyer, there are likely other similar companies out there who would also have an interest in your business. It’s at a time like this that your investment banker can be very helpful – doling out information to keep the buyer at the table interested and moving forward, while at the same time, reaching out to other potential buyers and bringing them to the table quickly to create some competitive friction. By following this strategy in the past, Mirus has had success in getting the preemptive buyer to increase their offer by more than 100%.
4. Burnout factor – The sale process can take 6 to 12 months to complete, and then the buyer is likely to want you to work in the business for a transition period after the closing. If the purchase price includes an earn-out, which they almost always do in the human capital sector, you’ll want to work in the business to help assure that the earn-out is achieved. So don’t wait until you’re completely burnt out to decide to sell – the ideal time to go to market is three years before you want to move onto your next adventure.
If you’d like to talk to me about the marketability of your firm, likely valuation range, and when you should consider selling, please reach out to me directly.