Most entrepreneurs think from time to time that it would be best for them to leave the business they run and start another chapter in their lives. I think all of us have thought about it at least once, especially when we have a major problem.
But very few take the desired steps. If we just had one problem in business, maybe getting out of business wouldn't be the best solution. Most of us will get over those issues. In retrospect, we can't help but think that maybe it's time to do something else. But not right now. I better wait just a little longer…
“Maybe in the meantime someone is knocking on my door with an incredible offer for my business and then I will seriously consider selling it.” It's just that that offer is often a trap, as I wrote about this topic here. (link here: https://www.thetimetosell.com/post/my-business-is-wanted-by-a-financial-investment-firm)
“Maybe, however, my son or my daughter-in-law will want to take over my business in the end…” It's just that they're probably happy with what they're doing right now and aren't thinking about taking over your business at all. Maybe they don't even like the field your business is in. Or maybe they don't feel that way - they know they're not as good as you. And that they never will be.
“Or maybe you know what would be better? Sell it only after I double its value. Or after I add that part I've been thinking about for a while…. Or that niche that just now seems to be on the wave. Okay, I decided: I'll sell it right after that.”
It's just that immediately after that, another opportunity and another desire appears. And the years go by. In the meantime, a lot can happen. Some will be luckier and will get over all their problems. But at some point, one way or another, you'll still have to take a step back from your business. And, just like now, both you and your business will probably be totally unprepared for that step. That is, neither the business will be able to be sold relatively easily, nor will you be prepared for this step.
In these situations there are a lot of entrepreneurs with whom I discuss the sale of their business. I would definitely be just like them. Why? Because I wouldn't know what else to do. I wouldn't know who to contact if I wanted to sell it. Or what I could do so that when I had to sell it I could do it as soon as possible. Maybe it would be difficult for me to let go of the "toy" when I feel so good playing with it. After all, we are still children - only with more expensive "toys." I would certainly be afraid of a new beginning, even if I started many businesses in various fields that I had no idea about at the beginning. And one more reason: now I am feeling important, at least in my company and in my community. If I don't have it anymore, it's like I'm losing something very valuable. Somehow similar to the self-image, with the appreciation of my own value, of the social status that I am not sure I could recover even if I were successful with a new business.
But at a certain age and in the face of greater life challenges, all these aspects fade. Sometimes from one day to the next. It’s somewhat similar to the overnight bleaching of an entrepreneur who was about to lose the opportunity to take over from the State the company he worked for as a director for 25 years because his bosses wanted that company for themselves, and in the previous day's meeting they wanted to fire him so he would lose the right of pre-emption in the event of privatization. He managed to take over the business by turning the situation in his favor at the last minute, but it all ended unhappily… a very sad story that, hearing it in conversation with that entrepreneur, marked me and I would not want to repeat it here.
What would I do with the information I know now?
1. First of all, I would sell it now when my business is (still) doing well, while it's still growing, and when the market situation still favors sellers.
Nothing lasts indefinitely. We all know it, we just forget this when we see everything colored in pink. Here is a concrete example of these that I wrote about in an earlier article:
Suppose you have a business that brings you 2,000,000 Euros annually, the value of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Calculating the value of your business very simplistically, using the multipliers in your industry will reveal that similar businesses to yours were sold at 8 times EBITDA, i.e. 16,000,000 Euros.
You don't realize the opportunity or you think that the price of your business will increase, that you will sell it for much more money later, after you add to your business that component that you have been dreaming of for some time and so you are waiting for it. Over time, fatigue will occur. Then you will go on longer and longer vacations, more and more often. You're not so focused on your business anymore. In 3 years EBITDA will decrease to 1,500,000 Euros per year. But now you will finally want to sell your business. In these 3 years, you have earned from your business or you have taken out in one way or another, the following amounts of money: 1,500,000 Euros in the first year, 1,300,000 Euros in the second year and 1,200,000 Euros in the third year - in total you earned 4,000,000 Euros in the 3 years.
Using the same 8x multiplier, the value of your business has now reached 12,000,000 Euros – i.e., 8 × 1,500,000 Euros as the value of EBITDA over 3 years. So adding the 2 values we will have: 12,000,000 Euros as much as you would sell it now plus 4,000,000 Euros as you earned in the 3 years of your business will give 16,000,000 Euros.
It is exactly the same value you would have received for your business 3 years earlier - if your business did not decrease even more and the multiplier in your industry would remain at the same level. In addition, a declining business will be worth less because that decline will scare a good portion of investors.
The calculations of the example show that you worked for 3 years for free. Even more: now your business has become more difficult to sell.
The bottom line is that it's always much better to sell your business sooner rather than later.
2. If I still wanted to try to develop that business opportunity that just appeared or to double my business until I sell it, in parallel I would prepare my business for sale even if I don't think about selling it right now.
What does it mean to prepare my business for sale even if I don't want to sell it now? Why would I do that?
You want the business to be ready for this step whenever it is needed or whenever you will want it. Preparing it for sale will guide your future actions in a way that you don't even think about doing it now. It will create real value for your business. That is, a value in the eyes of some investors, not just in your eyes. That preparation, with a minimum of attention from you, will last and take effect for the rest of the time you will manage it.
In a word, you will run a more valuable, optimized, and ready-to-sell business when you really need to.
You can consider it as a gift for you and insurance in case of hard times.
PS: If you are still thinking about selling your business, maybe it would be more interesting to know how ready your business for sale is before entering the process of selling it. Specifically, how much could you lose from the negotiated price with a potential buyer, at the final negotiation (immediately after the due diligence stage) due to some unresolved aspects of your business in time? To do this, complete the online questionnaire with 28 questions in the next 8-10 minutes. You can find it here and the answer will be instant, in exact numbers, when it is finished. Good luck in everything you do!
Check your “business preparation for sale” for free using the online questionnaire with an answer on the spot. Success!