The Central Penn Business Journal published an insert on Mergers and Acquisitions in 2017. The tag line of this insert is one of the most important considerations for transitioning a family business: “Timing is Everything.” One of the articles, “When a Buyer is Knocking,” featured John Stoner, the head of the business consulting group at RKL.
The article makes the point that, for many companies, the value of the company is closely tied to the company’s founder. This is especially true for family businesses. If the founder of the business gets hit by a bus (or simply disappears to the Caribbean after winning the lottery), usually a lot of the value of that business disappears. If you are looking to sell your business, you need to understand your value and how it effects a sale.
Because the founder creates much of the value of the family business, the timing of the sale has a profound effect on the sale price of the company. For example, if the founder sells the company when he or she is ready to completely walk away from the business, then the business is losing one of its greatest assets. In this case, the amount that someone else is willing to pay for the company is going to be reduced.
On the other hand, if the business owner sells the business in a way that he or she is still involved for a period of years, the value of that business to a buyer stays high. A third option is to make sure that when the founder of the business is ready to walk away, the next generation has truly taken over. This includes both financially and in the management of the business. If that is the case, the value of the founder of the business is replaced by the value of the next generation.
In any business succession or exit plan, knowing when to sell is completely linked to the sale price. Transitioning ahead of time, or selling at the right time, makes it much easier to disappear to a tropical island. Waiting until the last minute could mean saying goodbye to the beach. Proper planning and timing really is everything.