In an ideal world, an owner would sell their company when the timing was just right. The stars would align: a seller's market, a value higher than the owner ever imagined, terms that favor the seller, a buyer with the knowledge, motivation, and resources to close, and an owner ready for the next chapter. But what if that perfect timing never arrives, or the owner does not recognize it when it does? Yes, an owner can wait too long. Here are the tell-tale signs that the stars are misaligned and may never realign.
External forces are driving the owner's decision to sell
Examples include a sudden change in the owner's health that precludes day-to-day management while the remaining employees cannot compensate for the owner's absence, or the company suddenly losing a customer that represents a third or more of revenue without the owner having the time or energy to rebuild. In both cases the value of the business is damaged, and the owner is left deciding how to salvage what remains.
When the owner decides to sell, the options have shrunk or disappeared
Typical options include a sale to a family member, a sale to management, or a sale to a financial or strategic buyer. Each has its pros and cons. As time passes, though, an owner may have unwittingly eliminated options that could have served their financial and non-financial objectives.
An aging owner will not consider a succession plan
Some owners avoid succession planning, believing they will live forever. This can damage the company. Customers who rely on its products and services may question its long-term viability, and anxious employees may leave because they worry about job security should something happen to the owner.
The owner is not proactively pursuing new customers
Instead of making outbound calls to generate new business, the owner waits for the phone to ring, thinking, "I make enough to support my lifestyle, so why work harder than I have to?" That mindset is detrimental to the company's growth and long-term viability. It diminishes sale value, and the owner will likely not be able to sell at a price that replaces their annual compensation.
The owner runs the company for lifestyle and has stopped investing
Everything feels dated, the office, the production facilities, the products, even the team, and the whole operation moves at a lethargic pace. Preventative maintenance slips, and employees may still be working on computers from the Stone Age. A little extreme, but it makes the point: under-investment shows, and buyers notice.
Sales and profitability are declining, with no insight into future prospects
As a result of lagging or non-existent sales efforts, profitability falls. The owner may not realize it, but they are essentially managing the wind-down of the company, which severely limits its attractiveness to potential buyers.
Non-industry buyers approach, then pass quickly
Potential buyers may seem enthusiastic at first, then quickly conclude there is little to nothing to purchase because the company has been managed into a slow wind-down.
Industry buyers want the customers and a few employees, not the company
Prospective buyers may only want specific assets, or may conclude they can acquire the company's customers, employees, equipment, and technology at little to no cost by simply waiting for it to go out of business. That leaves the owner with the dilemma of holding out for better terms that probably will not materialize, or taking the only offer they receive and managing the messy work of liquidating assets, terminating employees, and winding down the business.
The bottom line: owners often do not recognize that the chance to sell has passed until it is too late. At the risk of being redundant, the best time to sell may be when the stars are aligned and the only reason to consider it is that all of the owner's objectives can be achieved in the sale. That, of course, is easier said than done. If you want a candid read on where your business sits today, we are happy to talk it through.
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