If you’re the owner of a small to mid-sized privately held company, you’ve probably been smelling the roses for quite a while now. And why not? We’ve been in a bull market for eight years. You’ve probably seen profits like you’ve never seen before. In short, you and your business are at the top in just about every way possible. Why would you want to sell now?
Because change is coming. And many people, me included, think that the good times will only last another couple of years.
Now I can just hear you saying: “OK, I’ll think about selling then. Why would I want to prematurely end one of the best runs my company has ever had?”
Fair question. But here’s what you may not realize. It takes time to sell a business. A year at least. Maybe more. By the time most business owners decide to sell, they are already a year late.
I’ve been in the business of selling small to mid-sized privately held companies for 30 years now. I’ve seen good times vanish almost overnight. And I’ve seen business owners wait too long. Before they know it, the roses they’ve been enjoying are wilted and the petals are at their feet. And they must ask themselves a tough question: Who would want to buy my business now?
At that point, it could be a couple of years before good times return. This could cause you to wait years longer to retire or to take some cash out of your business.
That’s why my strong advice is: Don’t wait.
Deciding to sell is different from being ready to sell
When you decide to partner with an investment bank to handle the sale of your business, that bank must do a lot of work to prepare your company for sale. The due diligence alone usually takes three months. Then there’s preparing a host of confidential documents and creating a “data room” that protects all the documents supporting your transaction. This is one of the ways we ensure confidentiality. And then the investment bank must search far and wide for potential acquirers for your business. All of this takes another several months.
In the meantime, the clock is ticking. The M&A market is strong today. Companies are selling for very high multiples. But many top economists will tell you that this market is not based on fundamentals. The financial markets are anticipating that the Trump Administration will succeed in lowering corporate tax rates, which will spark a return of billions in corporate assets from overseas. The financial markets also hope the President’s pledge of $1 trillion in infrastructure spending will stimulate the economy even further. Of course, all of this must be approved by Congress, which means nothing will happen soon and, if it does, it might not look anything like the legislation the President has in mind.
The message is simple. If you’re thinking of selling your business, the window of opportunity is probably 1.5 to 2 years, and the time for you to start weighing your options is now.
We know that selling your business is a tough decision. In fact, many business owners don’t really make the decision to sell. It’s made for them by any number of circumstances. Perhaps they suffer a heart attack or other debilitating medical condition. Or there’s a divorce, or they find out the children don’t want to run the business.
Don’t let this happen to you.
If you’re like most owners of small to mid-sized businesses, with fully 75 percent of your assets tied up in your company, you don’t want to be considering what to do with your business as the country slides or, more likely, plummets into recession. The time to sell a business is when it’s performing well, and you are healthy. That’s when your company is most valuable.
I realize that some owners are reluctant to sell their business because they don’t know what they’ll do in retirement. They forget that between their two ears is the institutional memory that is critical to a buyer who will likely want them to stay around for two or three years and will pay them well to do so. And that extra cash cushion means they’ll have even more money to invest in a new business, if they desire, or to simply retire and enjoy their free time.
Founder and Chairman
Allegiance Capital Corporation