Timing – The Third Variable in Your Selling Equation
By Brian Goodhart
Timing, as they say, is everything. Well not exactly everything, but it is very important. And it is yet another deeply personal factor that comes into play whenever deals are contemplated. In my last post I discussed Involvement and how each business owner or partner must decide their level of financial and professional involvement that they desire post-transaction. Once that has been decided, we now need to examine the length of time over which this involvement will occur.
Here again, I urge business owners to work with their family and advisors to determine what works best for them. When I speak of timing, I’m really talking about the length of time that a business owner wants to transition from their current role (as Owner/CEO, President, etc.) to the new position based upon their preferred involvement. Would you like to remain as acting CEO for 1 year and then transition to your other position? Would you like your earn out to last three years until you’re ready to fully retire?
While simple conceptually, considering timing forces a business owner to consider many other questions such as:
- Am I healthy enough to continue at my intended level of involvement?
- Are my spouse and other household members healthy?
- Do I need cash flow from the business post-transaction to fund my lifestyle or other personal ambitions or business ventures?
Timing is also one of those areas where outside help can be very valuable – particularly if that helper is a qualified financial planner. Most business owners I’ve worked with throughout my career have investments, but they’ve never worked with a qualified individual to come up with a financial plan. Such planning can be illuminating in a variety of ways.
Several years ago I worked with a business owner who was contemplating selling his business. I put him in touch with a qualified financial planner and with their help he worked out a detailed financial plan of what he wanted his retirement to look like.
This business owner was exceptionally active and loved to travel and was able to plan and budget for several large trips to Europe. He also had children and grandchildren he wanted to assist in numerous ways – all of which was accounted for by the financial planner. When it came time to discuss his Selling Equation, we had an excellent idea of what deal structures would work for him because we had a roadmap of his retirement cash flow needs extending out for nearly a decade. He could now entertain offers with confidence because he knew exactly how long he needed to be involved in the business and at what times he would truly start to transition his way out. Proper timing may not be everything, but it is empowering.
Brian Goodhart is Capstone’s Director of M&A Advisory Services. If you would like to speak with him about the process of selling a business, please email bgoodhart@capstonestrategic.com
