Family-owned companies in today’s economy are facing a common dilemma: Should you sell your business now and benefit from the economic boom, or ride things out for a few more years and see what happens? It’s not possible to predict how long the current wave of post-pandemic prosperity will last, so selling your business now may be the safest decision. The right M&A firm can help you make the right decision, so seek help early in the process.
Still not sure? Consider this math: If your company is worth 10x your current earnings, and you earn $50,000 one year, your company is worth $500,000. But what if you could increase earnings, even significantly in the next few years? If valuations fall by just 20%, your business may still be worth less, in spite of greater profits.
Then there’s the fact that money is more valuable today than it is tomorrow, especially in a climate of rapidly increasing inflation. Another factor is that you might have to make major investments in your company to generate more revenue, with no guarantee that this pays off. If multiples decline even slightly, this disincentivizes investing in your company.
One of the most common mistakes we see is that owners mistakenly believe that their business is increasing in value because revenues and income are increasing. But the value of your company depends on more than just bringing in more money over time. Owners must understand conditions in the wider market, and must make a realistic assessment of the rewards and risks of selling a company versus hanging onto it for an uncertain future. In a favorable market, selling now is usually the lower risk undertaking.
Private equity is increasingly interested in family businesses, since these businesses are ripe for consolidation and growth. How long will this trend last? No one can predict the answer, but here again, we see that selling now is the safer bet rather than hoping blindly for a better future.
There is one exception to the general advice that selling now is wise. If your company is in absolutely dire straits due to mismanagement—not to conditions beyond your control—then it may be worthwhile to work on repairing things over time, so you can bring in more money and ultimately generate more value over time.
If this is the case with your company, though, don’t just assume that more time will be your friend, or that with a little more work you can turn things around. Things can just as easily decline, and market conditions may undermine any growth you achieve. So before you embark on a plan for improvement, talk to a business broker or M&A advisor who can help you assess which efforts are likely to give you the greatest ROI.