Timing Makes Deals, and Timing Kills Deals - How To Avoid Seller's Remorse
Walter Adamson
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When selling your business, the timing can be as important as the price. The wrong decision can mean the difference between successfully exiting or living with seller's remorse.
In last week's newsletter , we explored why it is crucial to keep your original motivation for selling your business at the forefront of your mind as you progress through your exit strategy.
Once you resolve your intrinsic reasons for wanting to exit your business - the why, you face another equally important decision -?when to sell?
There may be a weak or a strong association between why you want to sell and when you want to sell, e.g. family or personal matters or the need to secure your long-term financial goals or to fire up a new venture ASAP, or you've just run out of energy.
Seller's remorse may result from waiting too long and selling too early.
Many owners hold on too long by wanting to see their business through to the end of a cycle. As a result, they sell after the peak value and see their business's value decline. Similarly, selling too early can mean you miss out on potential gains as the company develops and grows.
As such, it is essential to put as much focus on analysing the best time to sell as you have on building your business to this point.
Unfortunately, many owners lose value by becoming distracted, stepping off their exit path, and drifting.
You are most likely to drift and equivocate if you have yet to completely resolve?why?you want to sell - which we discussed last week - and not yet settled?when, which we are talking about today.
Holding on is often because of emotional equivocation
When it comes to the timing of the sale, there is no one correct answer.
Every situation is unique, and the best decision can only be made after carefully evaluating the circumstances, i.e., carefully weighing up the financial, personal and strategic implications of when to exit. Making clear decisions during this time requires keeping your original motivation for selling your business at the forefront of your mind as you progress.
Naturally, you are attached to your company. However, the ultimate goal of being clear about your motivation for selling is so that you can become less connected and more objective about the process and timing of the sale.?
A result of being less objective about selling is equivocation. Owners delay selling to benefit emotionally from the company's future success, which they justify by potential financial gains.
For example, you may convince yourself of the need to focus on developing relationships with potential buyers, building up your customer base, and further updating and improving your business operations or technology.
While this can be a tempting path to take, it can also be a risky one.
By waiting too long to sell, you can miss out on opportunities to maximise the value of your business to a buyer. For example, suppose an industry or market or technology is changing rapidly. In that case, you may be unable to keep up with industry trends or invest sufficient time and money into the business to maintain its value.
60% of owners wait too long to selling their business
According to a study conducted by Fortune Magazine, 60% of business owners wait too long to sell their business. This delay can have various negative consequences, including a decrease in the company's value, a decline in the number of potential buyers, and extra costs in the sale process.
Even worse, such delays send a message to potential buyers that you are indecisive and not motivated to sell. This impression will likely reduce buyer competition when you eventually do decide to sell.
Equally, if you sell too early, you may not get the peak exit value for your business. For example, if the market opportunity is growing and you sell too soon, you may leave money on the table, leaving you with seller's remorse.
On the other hand, buyers are looking for businesses with growth potential, so if the current performance could be stronger, investing in the business and focusing on increasing performance before selling may be beneficial.?
The "window of opportunity" process
Here is a simple heuristic to help you explore the best time to sell your business and avoid selling too early or too late.
This technique is called the "window of opportunity" method.
With your trusted advisors, you should assess your company's overall financial health, the company's performance and ability to fund growth, its market position, market conditions, the quality of your management team, competitor activity, and the current economic climate.
Finally, the window of opportunity method also considers the amount of time and resources you are willing or able to devote to the sales process. And, if you want to go further, also consider any legal, regulatory, or tax implications that might require altering the timing.
With all these factors in mind, identify an ideal point in the future that offers the most favourable conditions for divestment. Next, establish a "window of opportunity" to sell the business. The window of opportunity is a period when the company is likely to be in its most profitable and attractive state to a strategic buyer.
Remember that selling can take anywhere from six to 18 months, and it can take even longer for owners to get the business investor-ready. You will need to extend this timeline if you need to adjust your business model, streamline accounting processes, or implement other changes to meet the expectations of a potential buyer.
The length of the process means that you must plan well ahead if you want to avoid a lack of readiness constraining your ideal window of opportunity.
Takeaway - timing has a good and bad side - be prepared
When to sell your business is ipso facto all about timing. Good timing is often the most crucial factor in achieving the ultimate exit. Some experts say timing is the single most significant contributor to a successful exit - as opposed to team, idea, business model, future potential or funding.
This means that having an exit plan and keeping it active as a part of your business plan is always a wise idea.
There is another side to timing. In the M&A industry, the phrase "timing kills deals" refers to the fact that the longer a deal takes to close, the more likely it is to fall apart. A common cause for delays is unfinished due diligence. Knowing your "when" means being investor-ready and capable of delivering on your due diligence obligations during your window of opportunity.
In conclusion, timing is crucial when it comes to selling your business. By thoughtfully planning the timing of the sale, you can maximise your exit value and avoid common mistakes such as waiting too long or selling too early.?
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This Week's Reading
Two articles from my reading list to help you grow and exit successfully.
领英推荐
Article 1: What no one tells you about selling your business
After 10 years of owning her business, Jodie Cook sold it for seven figures. "I got my perfect deal and knew it was right. But even so, there were parts of the aftermath I had no idea would happen", she says. "In particular, the things no one tells you about the personal side of selling your business."
You'll hear stories about how someone bought a business like yours and turned it around and wonder whether you'd make a better owner growing your own business than the person who did it.
Jodie's tips start with her observation that people's most common mistake when selling their business is waiting too long.
Next, she lists the unexpected side effects she experienced during and after the sale:
What was Jodie's biggest takeaway from selling?
"I didn't think at all about what I would lose and how strange that would feel. Without a company, you might not be needed."
Source:?theygotacquired.com ?
Article 2: How To Sell Your Business: What To Do Before, During, And After The Sale
What caught my attention about this article was the section on what to do during the period that the deal is closing, or, for example, from when qualified enquiries have started until the deal is closed.
It usually takes between 3-12 months to close a deal. Of course, a lot can go wrong during that time, so keep focus and be careful to refrain from pre-spending anticipated proceeds or mentally retiring before the finish line, says Forbes.?
Businesses often sell themselves before they sell their businesses. This occurrence is especially true when an owner wants to retire early or take advantage of tax benefits. However, while the sale is still pending, it's critical to continue operating as usual.
While an active deal is in process, the business needs to operate as planned. Selling a business is time-consuming for business owners, even when they have an advisory team. But during this time, it's essential to ensure you hit revenue projections, profitability goals, and other key financial metrics.
Source:?forbes.com
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This Week's 3 Business Books
Free for you as a subscriber to my newsletter: Three of the world's most essential and popular business books in acclaimed 12-minute videos. Listen, or watch and listen to take advantage of another big idea.
Book 1: Never Eat Alone by Keith Ferrazzi (watch on Monday-Tuesday)
Keith Ferrazzi believes real networking is about finding ways to make other people more successful.
He teaches readers how to establish meaningful connections by being open to opportunities, reaching out to people, and offering assistance to others.
The book encourages readers to think outside the box when building relationships and to always strive for a deeper level of connection.??
Book 2: Decisive by Chip and Dan Heath(watch on Wednesday-Thursday)
Why is it that we can like or dislike people long before we know much about them? Why is it we distrust strangers without knowing why? Why on the other hand do we give too much weight to the information that's right in front of us, while failing to consider the information that's just offstage?
Decisive outlines the four villains of decision-making - narrow framing, confirmation bias, short-term emotion, and overconfidence - and provides strategies for overcoming them.?
Decisive is a must-read for anyone looking to make better decisions and take control of their lives.?
Book 3: The Prince by Niccolo Machiavelli (watch on Friday-Sunday)
The description "Machiavellian" conjures up unscrupulous, opportunistic, amoral characteristics. But we can apply Niccolo Machiavelli's lessons in today's business world:
A CEO must be willing to take bold and decisive action while remaining attentive to changing conditions in the market. A company should also invest in developing strong alliances, such as strategic partnerships with other companies, and should consider the incentives and motivations behind its employees. Finally, businesses should strive to create a culture of risk-taking.
The key themes Machiavelli discussed in The Prince are still relevant today.?
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? Previous Newsletter:?Why It Is Critical To Convince Yourself First Why You Are Selling Your Business
? Next Newsletter:?Don't Let A Poor Deal Structure Undermine Your Business Exit Financial Goals
Keep winning, Walter
P.S.?If you know you’re ready… it might be time to explore my?Proactive Exit Mastery?model , to see how you might capture the ultimate exit value for your business.?If you'd like to know a bit more, just message me or comment below with "Ultimate Exit Value".