When Should I Sell My business?

When-should-i-sell-my-business-650Generally speaking, as an owner you should begin developing relationships three to five years before you intend to exit your company. Some owners have missed out on what could have been the best years of ownership due to a misunderstanding of available options.

“I couldn’t work for anyone else after owning my own company!”

That may well be true. But most private equity groups will not invest in your company unless you or at least your management team will continue running the company. Private equity groups are not organized to run businesses. Their expertise tends toward financial modeling, lender relations, and acquisition activities.

“I’m having too much fun to sell my company now!”

A private equity firm simply provides you substantial cash now for equity while encouraging and financing you to continue growing revenues and profits.

“Why would I sell just part of my company rather than totally cash out?”

Through a partial sellout and funding, your remaining equity appreciates and oftentimes the sale of your remaining equity exceeds the funds received from the initial partial equity sale.

“We are a family-held company. Our shareholders could never agree on what to do with the company.”

A private equity firm may be the solution. Experienced with family dealings, a private equity firm may fill various demands by providing liquidation of shares for some and ongoing employment and/or stock appreciation to others.

“I’ve got kids coming along and want to see if they can manage the business.”

Some owners prefer that the private equity firm rather than a family member evaluates and takes appropriate steps to assure professional management experience.

“We’re growing rapidly and business is good so now is not the time to sell.”

The time to sell is when business is up and the future is promising. Buyers disappear when they perceive growth has diminished. Value is based upon future cash flow.

“I don’t want someone selling out this company and management after a few years.”

A private equity firm seeks to build the company and shore up the management. Many firms also desire that management owns equity. Companies are valued highest when management has a proven track record and a commitment to continue.

“I already have a strategic (industry) buyer that is interested. Why talk to someone that is not a leader in my industry?”

A strong industry player may be interested but may not be your best buyer. Oftentimes strategic buyers anticipate increasing profits through cost reductions (eliminating your key people). A professional investor that is not intimate with your industry may value your knowledge and company identity more than a strategic buyer. Sometimes the strategic buyer may be best option but an astute owner may select a private equity firm simply to retain management, grow on remaining equity, and continue with greater funding and support.

Diamond Capital has contacts with financial and strategic buyers with portfolios and investment dollars totaling in the trillions. Start early and evaluate your options with a trusted M&A advisor who can help you develop a plan in stages.