Exit Planning Mistake 5: Selling at the Wrong Time

By Generational Equity


A potential client once told me, “I will exit my company when I know the time is right.” When I followed that comment with a question regarding how he would know that the time is right, the answer was, “I will just know.”

Unfortunately far too many entrepreneurs use their gut when it comes to exit planning. Although this method may work for many business decisions, when it comes to monetizing their largest asset, most M&A professionals counsel a more contemplative approach.

Sadly, the reality is that far too many business owners “know when the time is right” because external circumstances force their hand. When one of the big “D’s” hit, you know the time is right:

  • Death
  • Divorce
  • Disability
  • Disagreement (amongst partners)
  • Disinterest (a.k.a. burnout)

These five are usually nearly impossible to predict but when they hit, they hit like a ton of bricks and going back once they hit is usually not in the cards.

Generational Equity, a leading M&A advisor to owners of privately held companies in North America, advises you to take a far more planned approach to your exit to ensure that your timing coincides with two things:

  1. When buyers are active
  2. When your business is optimally ready

Taking these in reverse order, the reality is most privately held companies suffer from some or all of the following:

  • Excessive customer concentration
  • Owner dependence
  • Poor financial reporting/systems

The good news is that each of these can be ameliorated if addressed strategically. You simply have to acknowledge that your business has an issue and then take logical steps to focus on them.

As for buyers being active, the fact is we are in the midst of one of the strongest seller market trends that we have seen in years. Although larger deals were impacted earlier this year because of uncertainty regarding the pending election cycle, the lower middle market has stayed fairly resilient.

Given the uncertainty regarding the long-term impact of Brexit on the U.S. economy, it is clear that the Fed will not be raising interest rates this year, which is positive in the deal-making world. Given the capital available on corporate balance sheets and committed to private equity, we anticipate this market should remain prime for business owners who are ready to exit.

The key word in the phrase “exit planning” is planning. As the famous author Lewis Carroll once said, “If you don’t know where you are going, any road will get you there.” This is applicable to the path far too many business owners are on when it comes to exiting their companies. Unfortunately it is not a topic that is focused upon because most business leaders are simply too busy operating their companies to spend a significant amount of time to consider how and when they want to exit.

This is one of the reasons we work so passionately to get business owners to attend our exit planning seminars: Far too many companies are simply not prepared for the owner’s departure. We believe that over the next 10 years we are going to witness the largest transfer of generational wealth ever seen in modern history as baby boomer business owners hit retirement age. As more and more reach the realization that their financial security is largely tied to one illiquid asset, they will soon realize that an effective exit strategy is needed.

This is where our M&A seminars come in. These are highly educational, led by seasoned M&A vets who in a few hours of time impart a significant amount of knowledge to our business owner attendees regarding how and when to exit for the most profit.

If you are interested in learning how you can attend, please call me at 972-232-1125 or email me at cdoerksen@genequityco.com. And no matter what, don’t make the fifth mistake covered in this publication and sell when the timing is not optimal – due to being forced by external circumstances beyond your control.

Carl Doerksen is the Director of Corporate Development at Generational Equity, part of the Generational Group.