Most private company owners fail to maximize the value of their business by selling at the optimum time. Engrossed in running the business, they work on long after the best point to realize the wealth they have created. The vast majority of private company owners wait too long to sell their business
Many entrepreneurs faced with the demands on cash of a growing business are tempted to sell equity to outside investors, or perhaps give away stock to retain a valuable employee. Diluting your stake in this way may solve the immediate problem, but it can have unforeseen consequences when the business eventually is sold. Stockholders’ personal circumstances evolve in different ways over the lifetime of a company, and whatever the original intention everyone may not be on the same page when you are ready to sell.
You have endured multiple meetings with potential buyers. You’ve written dozens of emails and suffered through several rounds of negotiations to secure the best price and deal structure. At last you have decided on the offer to accept. That’s the worst of it over then? Think again – you have yet to experience the joys of due diligence and sale contract negotiation.
For many entrepreneurs protecting the livelihoods of loyal employees after selling their business is an important consideration. There is always a fear that a trade sale to a rival will lead to job losses, perhaps even the closure of the entire business, as the new owners seek to boost profits by eliminating duplicated resources.
Most entrepreneurs build a business with a view to an eventual profitable exit. Most probably have lifestyle aspirations in mind that imply a certain amount of money to be realized from a sale. Whether they are looking at an exit now – or a decade from now – they need more than the subjective opinion of friends and acquaintances as to how much their business is worth.