By Scott Bushkie
I imagine we all have milestone ages in mind as we look to future life goals. Start a family by 30, buy a lake house at 40, retire at 55. Sure the ages and the goals vary, but I think we all have a tendency to create expectations for ourselves based upon nothing more than increments of five or 10 candles on our birthday cake.
Certainly we see this in the M&A industry as well, but we warn against it. Instead of planning to sell your business at a certain age, plan to sell when you achieve your financial goals. Think about what you’d like to accomplish in life and determine what you need to make that happen. Whether you want to give money to your kids or church, have seed funds to start a new venture, or retire with a certain level of luxury, those objectives should be the driving force behind your exit plans—not some arbitrary age.
By the time you reach that milestone year, your company could be in an unexpected decline, the M&A market may be in a down-cycle, or consolidators could have already moved through your industry. Business ideas only go so far.
Better to sit down with an intermediary, a financial advisor and an estate planning attorney, run some numbers and establish a plan. Determine the appropriate tax saving strategies early, before certain opportunities (such as trusts or annual non-taxable gifts to your kids) pass you by.
A business intermediary will have a pulse on M&A activity in your industry and can identify the value drivers that are triggering higher purchase prices. You might also commission a feasibility study to see what the market will bear compared to your goal.
Start tomorrow. Set some goals and begin planning for when you’re going to sell your business. Once you hit those goals, that’s when you go to market.
Why wait five more years because you said you were going to work until you were 60. Your age has no connection to the M&A cycle or industry consolidation.
What your age is probably linked to is your energy and ambition. If you wait to sell until you are 60 and then find out the market is poor, will you have the stamina to hold on for another three to five years?
It’s a shame when sellers misgauge the finish line. They lose their fire, and we see a lot of businesses go into a downward cycle that can be tough to come out of.
Planning to retire at 60 and planning to sell your business are two entirely different things. Business owners who want to keep working can negotiate extended employment contracts in a sale. After all, you can “retire” from as many jobs as you want, but you only sell your business once.
Scott Bushkie is President of Cornerstone Business Services, a low-to-middle-market M&A firm. Reach him at 888-608-9138 or [email protected]