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When Should Business Owners Think about an Exit Strategy?
Outside of marriage and the birth of a child, selling a business may be the most important life event an entrepreneur ever experiences, representing the financial reward from years of hard work, vision, and determination. And like anything that important, you want to do it only once, and you want to do it right.
Business owners often wonder: when is the best time to sell? And rightly so, as timing can be one of the most important factors in achieving a successful exit. Yet, oftentimes the topic of exiting their business appears on the minds of business owners only in reaction to external factors or pressures, such as:
- Retirement/Health Issues
- Anticipated Changes in Tax Regulations
- Industry Pressures
- Family Dynamics
- Need for Personal Liquidity
- Unsolicited Offers
Yet, without proper planning, business owners are caught flat-footed when one of these factors arises, causing them to miss (or at least not maximize) an opportunity to sell. Rather than wait until they are compelled into sale discussions by outside forces, smart business owners plan ahead and are ready when the time is right to sell.
And when, precisely, is that time? When at least two of these three stars align:
- M&A Markets – the more buyers there are looking for deals, the better your business will be received. Middle market deal activity is currently at record levels, fueled by cheap debt and an overabundance of private equity capital raised that must be invested in private companies. It is definitely a seller’s market.
- Your Industry – do you participate in an industry that is experiencing headwinds or tailwinds? Is it growing or shrinking; the wave of the future or an echo of past glory days? Just as a rising tide lifts all boats, so too does a favorable industry raise the valuations of its participating companies.
- Your Business – perhaps the toughest to objectively assess, you want to bring your company to market when it is hitting its stride. Ideally, the financial metrics of growth and profitability have been strong and improving for the past several years, and the company is posting solid year-over-year growth. Most importantly, you want the outlook for the next several years to be bright.
Keeping your business in a constant “ready-to-sell” state will enable you to launch a sale process when the time is right, or to respond quickly to an unsolicited bid or other external factor. To learn more about how to achieve a state of readiness for your business, contact Jonathan Brabrand at The Fahrenheit Group.
Jonathan Brabrand is a Managing Director at The Fahrenheit Group and brings a unique skill set to the firm based on his 20-year career in middle market investment banking. Having represented dozens of companies in successful sale processes during his tenures at premier firms, such as Harris Williams & Co. and BB&T Capital Markets, he now provides independent pre-transaction advisory services to entrepreneurs, business owners, and Boards of Directors to help them evaluate and prepare for future liquidity events, including M&A transactions, leveraged recapitalizations, or capital raises. He also works with executives to hone their business plans, develop acquisition strategies, and refine their company’s core value proposition. His experience-based advice on liquidity alternatives, timing, valuation, and overall transaction readiness focuses solely on the owner’s best interests and lacks the inherent bias from business brokers and investment bankers whose ultimate goal is to secure an advisory mandate.
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Richmond, VA 23230