For many entrepreneurs, the storybook journey involves launching, building and running a business -- and then selling the company at a really good valuation so that you can live "happily ever after."
But what percentage of entrepreneurs actually live that dream? It's difficult to pinpoint an exact number -- especially since so many business leaders sell their companies for reasons other than the financial upside.
As you might expect, most sellers want to exit their businesses in order to focus on retirement. But the No. 2 reason entrepreneurs sell their businesses involves personal burnout, according to a Q2 2016 small business valuation study -- known as the IBBA and M&A Source Market Pulse Survey.
According to one participant quoted in the research:
“If we dig deeper into the numbers we see that sellers are two or three times more likely to sell because of burnout than health issues. Obviously that’s a concern because burnout doesn’t happen overnight. By the time you decide you don’t have the energy or ambition anymore, your business is probably already feeling the downward effects. There’s a difference between sprinting across the finish line and limping across, and business values reflect that.”
Why to Sell: Variables to Consider
Still, sometimes their are multiple motivations to sell a business. Such was the case when Amy Katz and I sold our previous company in 2011.
While the company wasn't a VAR or MSP, there were some parallels between our journey and the overall IT services provider journey.
At the time we were growing quickly, profitable and debt free. But we were working crazy hours, and we had some strategic needs. For starters, we needed a core team across HR, finance, marketing and more to really scale the business. Plus, there were some basic day-to-day concerns. While I can't speak for Amy, I know I was concerned that my net worth was tied up in a business. If anything happened to me or Amy while the company was independent, the fiscal impact on our respective families could have been devastating.
So by mid-2011, we entertained multiple offers the company. The timing allowed us to take some money off the table, plug into a buyer's infrastructure (marketing, IT, finance, etc.) and pursue a longer-term growth strategy. And the deal also helped to ensure that I didn't burn out as a blogger, and Amy didn't burn out as a business builder. (PS: After that 2011 sale, we remained with the new ownership until 2014 before taking some time off and reemerging with After Nines Inc. and ChannelE2E.)
When to Sell: Can You Time It?
Overall, I'm not sure you can truly "time" the sale of a business. But you can always be prepared. Amy, for instance, made sure our finances were always in order. And on my side of the house, we had analytics in place to show our overall audience trends.
As the IBBA and M&A Source study notes, many potential sellers "lack timely accounting records and their owners have unreasonable expectations, terms and conditions, or are simply too emotionally tied to the business.”
Still, you've got to break from that emotional connection and think of your business as an asset. If you're burning out while you run that asset, chances are your business's valuation is faltering as well...
