They say that luck is the residue of design. That is typically true for business owners that sell their companies for premium valuations (i.e. the greatest values). They are not only lucky but also reaping the rewards of a well-designed exit strategy. There are countless published tips to maximize business sale, improve the value of a company, and prepare for an exit, but business owners able to recognize windows of opportunity can typically sell the business for a much higher premium.
Setting the Stage to Maximize Business Sale
The following five scenarios often suggest a good opportunity for selling a company.
- The industry is hot.
- Why? This window is the time when other companies are looking to break the barriers of entry into the industry, and there is usually no better way to do that than by acquiring an existing company. If a business is in a popular industry, then its owner could find himself or herself with multiple offers from eager buyers. This variety of options provides the owner the chance to potentially sell the business for its true value.
- Interest rates are low.
- Why? Most buyers use debt capital – money that a business raises by taking out a loan — to finance the purchase of a business. When the cost of debt is low, valuations are higher. Therefore, business owners could earn more money by selling their companies.
- A buyer has a compelling reason to acquire the company.
- Why? If a buyer is set on purchasing a particular business, he or she may go to great lengths to buy it. In turn, the business owner could be more likely to sell for the desired price.
- There is noise in the industry.
- Why? There may be more news about consolidations in the industry, meaning large firms are buying out smaller firms to build market share. This moment may be a good time for owners to sell and earn more than they would through a consolidation.
- The business has had a good run.
- Why? Simply put, after three years of consistent growth, a business owner has a good opportunity to sell at a premium. Specifically, buyers may be more likely to purchase when they see that they could yield a high return on investment (ROI) from a growing business.
Preparing for the Final Act
Exit strategies appear in many forms. Businesses owners can sell to larger companies that are seeking to expand through acquisitions. Some business owners may sell to financial buyers (e.g. private equity groups) who look to grow and, ultimately, sell a company to earn a significant ROI. Family businesses tend to have exit strategies built upon generational transition, which – when carefully designed – can certainly be a potentially lucrative strategy for all parties.
Being the Playwright of Your Exit Strategy
Many business owners have spent a lifetime building companies, but they sometimes fail to maximize their return and sell to their preferred buyer simply because they were not opportunistic. Business owners are well-served by keeping their eyes and ears open for opportunity. If you are a business owner in need of a successful exit strategy, then we can help you break a leg while selling your business.