When is the Right Time to Sell?
— Bruce Amrine, October 2009
The biggest and hardest decision we ever have to make as business owners is when to sell “our Baby”.
When is the right time to sell? One obvious answer is: When the sale will allow you to achieve your goal. You need to determine what that objective is. Usually it's a financial goal, but there can be other factors as well. The freedom to travel or do volunteer work are often mentioned. How much money will it take to achieve your goal?
Lately, we have been hearing a lot about Wall Street traders, bankers, and other business executives receiving salaries/bonuses of tens or even hundreds of millions of dollars. You might wonder “Why do they need so much? What do they actually DO with all that money?” Who knows what they do with their money? The point here is that while you’re not likely to sell your alarm company for tens or hundreds of millions of dollars, you do need to decide what you want to do with the rest of your life, and how much money you will need to realize from the sale of your company in order to achieve that goal. You need an exit strategy.
The sale of your business is probably the most significant financial transaction of your entire life and should be carefully planned. The biggest mistake that most business owners make is waiting too long. It’s better to sell when your company is strong and growing rather than under stress.
So often we hear, “I just want to build my company for another few years and then sell.” But is that the best strategy? The future is unpredictable. Consider the possibilities and implications. A small entrepreneurial company may seem like it’s growing rapidly in the beginning, probably adding a couple hundred accounts each year. As time passes, growth begins to slow as attrition of old accounts gradually rises. You soon reach a point where you need to substantially grow the company in order to sustain the growth. This often happens around 1500 accounts.
Do you want to take on the risks and problems that go with taking your company to the next level? Do you still have the energy and drive to succeed or are you burned out? Can you manage the new employees effectively? Are you prepared to delegate the responsibilities to others. What are the financial resources available? Can you keep up with the new technological changes that are revolutionizing the industry? Can you keep abreast of new code, compliance and licensing requirements? Are you prepared to risk what you have already built in order to grow it to a higher value? Growth often doesn’t work and you may lose it all. The skills that got you to where you are may not be adequate to get you to where you think you want to go. Do you really need the additional value that the additional growth is intended to bring in order to meet your ultimategoals? If the answer to these questions is no, then right now is probably the right time to sell.