Sell your Business during an Uptick

May 28, 2015

Your business is doing well, with 2009 in the distant past. But you are also getting older and worn down from many years – maybe even decades – at the helm, with no heirs apparent to take your company over. What to do? Your menu of options is limited, though selling your company to an unrelated third party is an obvious first choice. OK, so it is now time to take the next logical step and contact a professional business advisor to learn about the selling process and to get a valuation on your company.

While your business is improving every year, and 2015 is shaping up to be the best year in your company’s history, your business advisor tells you that the purchase price is a reflection of what you have done over the past 3 to 5 years; your 2015-16 forecast has little, and possibly no influence on the value of your business. You, of course, are disappointed – perhaps even outraged.

But it is your company, you control its destiny, and while the prospect of a sale and subsequent retirement is very inviting, you correctly want to maximize the value of your company in a sale. So, at this point, you make the difficult decision to “hang on” to your business for another year or two so you can pocket your forecasted big profits while enhancing the overall value of your business. Good decision? Read on…

If you were to negotiate an intended sale (LOI – letter of intent) today for the sale of your business, a combination of banking, buyer due diligence, document preparation, etc. will result in at least a 90-day lag between LOI and the closing of the transaction. If, during this period, your business does as well as you have forecasted, great. The buyers will feel good about both you and your company. They will believe they got a fair to favorable deal on your business and, as a result, the chance of post-close issues on warranties and/or representations will be minimized. Equally important, if the business has performed well during the post-LOI pre-close interlude, the buyers will be less inclined in the future to either delay payments on – or attempt to negotiate changes in – the seller note.

So, while selling on an “uptick” could result in not maximizing the sale price of your business, it should result in a long-term positive relationship with the buyer which, in turn, has the highly desirable outcome of minimizing the possibility of post-close issues.

Looking at the big picture, the consequences of possible poor business results by hanging on to your business too long in a quest to maximize the sale price, can be so unfavorable that such activity is generally a poor business risk. Our recommendation is always “be willing to leave some money on the table and sell on an uptick.” Following that simple adage will greatly enhance your long-term happiness with the deal.

Contributed by Michael Greengard, Praxis Business Brokers.

Through the Michigan Chamber’s partnership with Praxis, we can guide you through a step-by-step process of the complexities, all while maintaining complete confidentiality. To learn more about valuing and/or selling your business, please contact Michael at mgreengard@praxisbusinessbrokers.com or 616-588-4640.

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