When To Sell A Business

Steve Fitzgerald
Acquisition Services Group
San Diego

Having been in the merger and acquisition industry for a lot of years, I have frequently been asked for advice on when to sell a privately owned business. With rare exceptions, the core issue is really a lifestyle decision and not necessarily a financial one. For most business owners operating their business is their life, and if they enjoy it and bounce out of bed every morning anxious to face the day, then it most probably isn’t the right time for them to consider selling.

There are exceptions to the above and they are: {1} if someone offers you substantially more than what the business is really worth, {2} if you have reason to believe you have significant health issues ahead of you, {3} if your spouse hates the business and wishes that you were no longer involved in owning it, {4} if you are ready to retire or want to move on to other opportunities, and {5} if you can accurately predict forthcoming doom and gloom coming in either your industry or in the overall economy.

Let’s examine each of these:

  1. One of the prime reasons this rarely happens is that very few business owners have a realistic idea of what their businesses are worth. By way of contrast, my wife and I have ownership interests in five different privately owned businesses (combined annual revenues over $30 million), one of which I dedicate my full time efforts (Acquisition Services Group owned 50/50 with a partner) and the other four are managed by partners. Every January and July I do a business valuation on each of them and those figures are used as follows: as vital information in formulating written Business Plans, updating personal financial statements, and entry into our Estate Planning Binder so that either my surviving spouse or replacement Trustee in our Family Trust can have a head start on making any necessary business decisions. What?? You don’t know the value of your business? You don’t have a written Business Plan? You haven’t done any Estate Planning? That is bad news for you and your heirs, but great news for your competitors, the IRS and all the lawyers that will end up getting involved before all is said and done!!
  2. Most privately owned businesses lose 50% or more of their value when their primary owner becomes either incapacitated or deceased. Obviously this is an insurable risk; however, if you have early warning signs or you might be in a high risk category, you should proceed accordingly. What?? You don’t get an annual physical?? That is the equivalent of trying to run your business without either financial statements or getting any professional advice.
  3. Quality of Life is basically the name of the game, and if your spouse is not on board in the ownership of the business, you really want to give the idea of selling a great deal of thought.
  4. Getting burned out or lacking any challenge in your business means it is time to start thinking about hanging it up (if net worth will accommodate retirement) or selling and doing something else — those who live their lives doing something that they enjoy outlive those who don’t!
  5. My life experiences have been that virtually no one is good at anticipating doom and gloom and jumping off the railroad trestle just before the train rushes by!. Just yesterday a friend told me about a financial guru who correctly predicted the 2007/08 credit meltdown of the stock market and economy. My friend had signed up and paid this guy for his future advice. I really didn’t have the heart to tell him that the guy had been around for at least 40 years, to my personal knowledge, and he had continuously been predicting the end of the world, during which time he had missed three of the greatest bull markets in stocks, in real estate and commodities.

Short term traders are almost always unsuccessful, and the vast majority of personal fortunes that have been accumulated have been those that have been because of having faith in the US economy, hard work and taking intelligent longer term positions in their choice of business or industry.

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