“At the rate I am growing, shouldn’t I wait a couple of years to sell my business? I’m bound to sell it for more if I wait.”
Colin (not his real name) owns a fantastic business. He bought it 17 years ago with no idea it would become as successful as it is today. “I was just tired of my job in an office building, I didn’t become an entrepreneur to get rich,” he said as he told me how he got into the business. But by any measure, Colin will be “rich” when the business is sold.
Colin’s business will be very attractive to private equity. He has an experienced and stable management team supporting him, they have a clear path for future growth, and the business gets more profitable with every new dollar of revenue. The business checks all the boxes for which astute financial buyers measure opportunities.
Given his pace of growth, Colin knows he’ll be leaving money on the table if he sells now. I told him he could potentially get 25% more if he waits two years to sell. This increase is a function of expected revenue and profit growth, but also because his continued growth will likely justify a higher multiple in two years. So, waiting seems like a no-brainer, right?
Well, maybe not a no-brainer.
As we talked through whether to sell now or wait two years, Colin was making notes on the flip chart in his conference room. After about 20 minutes of back and forth, he drew a big red circle around the words, risk of waiting. Sure, everything looks great right now, but at the age of 63, Colin has lived through enough economic cycles to understand that things change. He said it this way, “I know the future has a way of turning plans upside down.”
The other factor that weighed heavily on Colin was the need to secure his family’s financial future. “My wife doesn’t work in the business, but she’s poured her blood, sweat and tears into supporting me every step of the way. She’s ready for the pressure to be behind us.”
Colin has a tough decision. Selling now has advantages, but waiting is an equally compelling option. As we ended our meeting, I told Colin the decision comes down to a simple question — is the upside of waiting worth the risk?
We had a follow up conversation a couple of days ago, and he told me he’s ready to sell now. “While I might be leaving money on the table, I know I can sell now. I can invest the sale proceeds immediately and over the next two years, the growth of that investment will in part close the gap of what I could have sold the business for if I wait.”
By selling now, Colin eliminates the risk of waiting and still has upside. Given so much uncertainty in the world today, I think many business owners will be coming to the same conclusion over the next couple of years.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The principles above are true, but the names and fact patterns are changed to preserve the parties’ identities.
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