- Category: Industry News
- Created: Tuesday, 16 December 2014 03:45
- Written by Craig Castelli
"I know I need to start thinking about selling my business, but I'm not sure where to start."
Business owners say this to me weekly. Most are approaching retirement age, but some are just worn out from years of being an owner-operator. When we advise owners in this situation we tailor our guidance to the owner’s personal goals and the industry’s exit opportunities. We start by asking these two questions:
If someone paid you (insert desired amount) tomorrow, would you be willing to sell?
This first question examines your willingness to let go. If someone offered to pay you enough money, whatever that means to you, would you hand over control of your business? If the answer is yes then you are mentally prepared to move on. It’s time to seriously consider selling.
If you find yourself unable to answer the question definitively, then perhaps you’re not ready. Some people love what they do so much that there is no amount of money that would entice them to sell. Others will say “yea, but…” But only if it’s to these four people. But only if it’s an all cash deal. But only if they agree to run the business exactly how I run it. While any of these may be possible, the more “but’s” you insert the less ready you are to sell.
Is (amount from Question 1) realistic?
Now it’s time to perform a reality check. I don’t know a single person who wouldn't walk away from their business for the “right price”, but that doesn't necessarily mean there is anyone out there willing to pay such a price. Let me use my business, Caber Hill Advisors, as an example.
I experience a common phenomenon when answering these questions – my business is worth more to me than it is to anyone else. Caber Hill is a young company, and I believe that I’m building an enterprise that will one day be worth a healthy 8-figure valuation. It’s nowhere close to that today. Sure, if someone were to make me an offer with enough zeros then I’d hand over the keys immediately. I’d be foolish not to. But that someone doesn't exist.
Fortunately, I love what I do and plan to run Caber Hill for the next 20-30 years. I have time to reach my goal.
For those of you who have shorter horizons, it’s time to return to question one. Ask yourself the first question again, only this time use a realistic amount. If the answer is still yes, then you’re ready to sell. If it changes to no, then you have two choices – accept reality, or figure out what is holding your valuation down and take the corrective action necessary to increase value.
How to determine a realistic price
This is the easy part – get help. Retain a reputable firm with expertise in valuing businesses in your industry. You can read about our valuation services here.