Most business owners at some juncture consider monetizing all or part of their business. They spend many years building a sound business and reach a point in life where they would like to take some chips off the table or have an outright sale so that they can “cash in,” so to speak. In speaking with business owners, a question that often comes up is, “when should I sell?”
The key element is how your business is performing. Good companies sell in good times, bad times and unsettled times. The real key is preparing your company and having it ready so that you can be opportunistic and take advantage of the market.
The market we are in today is a good example – it is definitely unsettled. Commodity prices are down and there is a worldwide slowdown of business activity. Yet, in the United States there is a huge amount of money on the sidelines and good companies are selling for a premium price. The reality is we are in a great M&A market and premium prices are being paid.
Business owners who plan are much more successful than those who don’t.
The perfect time to sell is WHEN:
1. The business is performing well;
2. Prospects for the future look good;
3. The management team is intact;
4. The owner’s health is still good
Let any one of these change and
a material decrease in valuation will occur.
While now is a great time to sell, nothing lasts forever. Once interest rates rise, lenders will become more cautious and valuations will decrease. There are a variety of great options for sellers in today’s strong market. They include:
- Outright Sale
- Partial Sale
- Leveraged Dividend (take some cash off the table)
- Employee Stock Ownership Plan/Several Options
Prudent business owners should explore all options available to them and plan for the future to achieve maximum results both financially and personally.
ABOUT THE AUTHOR: David J. Mahmood is chairman and founder of Allegiance capital Corporation a middle-market investment banking firm that works exclusively with privately-held and closely-held companies. Before becoming an investment banker, Mr. Mahmood started seven companies from scratch. He has a real appreciation for what it takes to meet Friday’s payroll, next month’s bank payment, interview, select, hire and train the personnel necessary to build an organization. He has been exceedingly successful in helping business owners maximize value.