By Patrick Ungashick, CEO
I speak to more than 50 business audiences per year about getting ready for exit, putting me in front of thousands of business owners. Perhaps the biggest mistake that I hear owners making right now with regard to their exit planning is not having an answer to this one question:
"What are you waiting for?”
Let me explain, because there are two potential ways to interpret this question.
Consider the Financial Implications of Not Selling Now
First, I commonly hear owners say they intend to exit and sell the company sometime in the next several years, with a typical answer of “within three to five years.” When I hear this statement, my next response is, “What are you waiting for?”
What I mean is why is that owner waiting a few more years? Why not just sell now? At the time of writing this article (October 2018), multiples for small to mid-market companies are near all-time highs in most industries, and buyers are flush with cash.
If you seriously intend to sell sometime over the next three to five years (which is only 36 to 60 months), then why not go ahead and try to sell the company now? A reasonable person can conclude that multiples are likely to be lower in the near future.
Consider the financial implications if you don’t sell now. If multiples in your industry fall by 25% over the next few years — a common decline when coming down off the highs we are currently experiencing — then your company has to grow its profits by 25% just to tread water on its value. Why take that risk?
There are sound and compelling reasons to wait to exit despite today’s strong prices. I am not suggesting that a business owner should rush and exit before he or she wants to or is prepared. But that’s not what I hear when I ask this question.
Overwhelmingly, owners don’t have a concrete answer when I ask what they are waiting for. Typically, they offer up vague answers about being busy or pursuing more growth without a clear finish line. That’s a mistake. If you are going to sit out the current strong market, do so for clear and compelling reasons. If you lack clear and compelling reasons, then go back to the question:
“What are you waiting for?”
(Before proceeding, a quick editorial comment. As exit planners with a business predicated on five-year exit strategies, suggesting you should consider exiting now potentially eliminates you as a prospect for our services. I point this out to illustrate why I ask this question regretfully.)
Not Preparing for Exit Creates Unnecessary Risk
There is a second interpretation of my question. Many owners recognize that they are not ready to exit right now. Common reasons owners and companies are unready include:
- The company is too reliant upon the owner’s involvement
- The customer base is heavily concentrated around a few large accounts
- The leadership team has holes in it or needs upgrading
- The financial statements and report are not sufficiently reliable and robust
- The partners (if applicable) are not in alignment
- The owner has not yet figured out his or her plans for life after exit
Whatever the reasons, the mistake is not being unready for exit. Rather, the mistake is waiting to make the commitment and waiting to create a plan to address these issues by a specific deadline.
Companies do not get ready for exit without significant effort – getting ready for exit takes years of work and preparation. (Ask any owner who has exited and you will almost universally hear, “Yes, I wish I had started earlier and given myself more time to prepare for exit.”)
To be fair, owners do not have to engage outside help like us — they can do it themselves. But whether working with advisors or doing it on your own, what are you waiting for to prepare yourself and the company for exit?
When I ask this version of the question, owners offer up the same vague answers as before about being busy or pursuing more growth without a clear finish line. At some point, owners have to realize that they will always be busy, and the company will always have more potential ways to grow.
Unfortunately, this realization often comes too late. Waiting to commit to getting the company ready creates unnecessary risk, and it is perhaps the primary reason why so many owners struggle to exit smoothly and happily.
So... What are you waiting for?