The old adage that “timing is everything” is never truer than when it comes to selling – or not selling – a business.
As respected mergers and acquisitions educator, Darrell Arne, notes: “owners seldom sell too soon, but very often wait too long.” He coined a simple phrase on wise strategic choices for selling a business as being, “hold and grow or sell and go.”
Examples abound of owners who held too long and lost. At the age of 67, one robust owner expected to build his beloved business for another decade. Overnight, illness put him in ICU for months prior to an untimely demise. His vibrant company lost its rudder, and its value to his heirs fell precipitously. All too often, the onset of a debilitating disease, such as dementia, leads to misery as families and employees suffer both the progressive decline of the owner’s health and the protracted demise of great businesses.
Nor is any company immune from unexpected and uncontrollable market fluctuations. One needs to look no further than a major oil price bust to see the often-catastrophic effects that outside factors can have on once-solid businesses. Also scores of businesses became “unsaleable at any price” when new loan underwriting mandates were imposed and acquisition loans dried up overnight. Under the wrong conditions, the value of a great business can tumble rapidly with a terrible impact on the owner’s net worth and estate.
A key entrepreneurial skill is recognizing when to build the owner’s estate by holding on to the business as opposed to capturing higher value by selling. The right time to hold tight or to divest is not obvious, but wise business owners can help optimize value and avoid the worst-case scenarios by proactively doing two things: checking their health, and scanning the horizon.