SOURCE: Corporate Finance Associates

May 11, 2007 13:21 ET

How Do I Know It Is Time to Sell My Company?

CHICAGO, IL -- (MARKET WIRE) -- May 11, 2007 -- Bob Contaldo, Managing Partner of Corporate Finance Associates, offers the following advice:

Selling your business, which is perhaps your largest asset, can be a difficult decision. It has been part of you and part of your family. It has been good to you like an old friend. You have loved it -- you have cursed it -- you have nurtured it, you have seen it from birth through the teen years and into maturity. Unlike us, it can live for generations -- though the time will come when it must change hands.

When the cycle of business and our personal circumstances begin to herald the transition, it should be addressed in order to realize the financial security for which it was created.

After 25 years of selling companies, I have found that it is near impossible to convince a business owner to sell until the business and personal reasons align. But once they do, no good ever comes from delaying a sale.

So… Here are ten points to consider when deciding whether or not it is time to sell your business:

1) The Thrill Is Gone

We all go through seasons in life. Young business owners focus on raising a family, planning for the future and striving for a financially secure retirement. To that end, fighting the battles and making the sacrifices are necessary and expected as part of growing a business. But there comes a time when a business owner does not care to take the business any further. The battles and victories that at one time were energizing have now lost their importance, and have become somewhat boring and wearisome. The focus shifts to more time off, warmer weather, or more leisure time activities. Many business owners want to pursue a new direction in life that satisfies a greater personal or community need.

2) Your Marketplace Is Changing

Businesses that do not change will ultimately fade away. Change requires new market direction, new equipment, new people, new technology, and new capital investment. Market changes can include more complexities involving government regulations, taxes, certification requirements, customer reporting requirements, foreign competition that threatens margins and customers seeking fewer suppliers and lower costs. Many times the direction is clear, but the mind, body, and emotions are not willing to embrace change.

3) Risk Becomes A Four Letter Word

With all that needs to be done in a changing marketplace, business owners cannot afford to be squeamish when it comes to ongoing investment in the company. When one reaches the point of not making logical investments in the company or tends to count the debt rather than the probable benefit, it might be time to sell. Most business owners reach a point where they are tired of "betting the farm," tired of personal guarantees, and tired of meeting financing requirements and covenants. There comes a time when it makes sense to "take some chips off the table."

4) A Change Would Be Good For The Family

Many have experienced the challenges of a family run business. As the succeeding generation grows into personal and business maturity, it may be time for a generational transfer of ownership. A recapitalization with a Private Equity Group as a financial partner can allow the founding shareholders to take the lion's share of the business value in cash at closing, while the succeeding generation reinvests (through a small amount of the proceeds) for a large share of the company going forward. The company would also have access to growth capital. How great would it be to again have a family relationship that is not encroached upon by business? Is the business stealing time from your kids? Are you trading memories for dollars? Many business owners have delayed a sale in spite of the concerns of a loving spouse who desires a different and better life for themselves.

5) Unprecedented Seller's Market

The three principal buyer groups are Private Equity Groups, strategic acquirers, and high net worth individuals.

Private Equity Groups have become the new conglomerates with overflowing levels of investment capital. With thousands of Private Equity Groups in the United States and a like number overseas, competition to buy companies is fierce. Multiple offers are the norm for even marginal or smaller companies. Premiums are being paid for companies as demand exceeds supply.

Strategic acquirers see growth through acquisitions as the preferred way to gain market share quickly, add product lines, augment human resources, enhance management, and stay competitive.

High net worth individuals can be worthy suitors. These individuals bring significant personal finances, outside private investment capital, experience, contacts, and expertise to the mix.

The convergence of these three types of buyers, along with a stable economy, low interest rates, and banks and other financial sources flush with ready capital, have created "The Perfect Storm" for sellers. An unprecedented seller's market exists.

6) Unusual Financial Gain

Perhaps you have been approached by a bona fide buyer who is larger, cash heavy, willing to overpay, and inebriated with the desire to own your company. (We can dream can't we?)

7) The Business Is Growing

It seems incongruent that a business owner should consider selling when growth is accelerating, but growth can end the life of a business -- fast. Cash flow becomes the monster that consumes. Even in circumstances where growth is more controlled, businesses reach a point where professional management at a higher level is demanded. The founder of the company is wise to recognize that the large business dynamic has thrust him into unfamiliar territory, requiring personnel changes, organizational upgrades and a bigger and much different way of thinking.

8) The Business Is Flat

If flat, declining or inconsistent financial performance characterizes your business over the past several years and you just cannot seem to "crack the code," let someone else figure it out! A strategic buyer, or an individual buyer with a dynamic skill set, or a Private Equity Group with more money and contacts might hold the key. Many business owners fail to realize that by staying in business under these circumstances, they forfeit personal income opportunities elsewhere and personal finances can be insidiously eroded.

9) Managing People Has Worn You Out

Do you long for the time when you need to only manage yourself? Are employee issues, government regulations, unions, medical insurance, profit sharing, and retirement plans driving you to the brink?

10) Personal Compelling Reasons

The reason for considering selling a business will generally transcend the enterprise value of the business (though not to minimize the value component). The fundamental checkpoint in considering the sale of a business is this: "Does this business stand in the way of doing something else with my life?"

Hopefully the decision to sell is voluntary and not due to circumstances that necessitate a sale; but in any event, an exit strategy should be considered as part of estate planning since life is uncertain. An expert team comprised of a Mergers and Acquisitions professional and financial and legal counsel is a must.

All business owners experience all or some of these points from time to time with varying intensity. When that trusted "gut" feeling indicates more than a passing notion of selling, it may be time to explore options. The reality is that more business owners have said, "I wish I had sold sooner" than "I sold too soon."

About Corporate Finance Associates:

Corporate Finance Associates (CFA) is one of the oldest and largest middle market investment banking firms in North America. Since 1956, CFA has helped owners of privately held companies navigate the complex process of selling their business, or growing by acquisitions. CFA works relentlessly towards maximizing the value of each transaction for our clients. CFA's Illinois office, located in the Northwest suburbs of Chicago, has a greater Midwestern U.S. focus and works with companies with revenues of $5 million to $100 million. For more information, please refer to the CFA website at www.cfachicago.com.

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