The Risks of Waiting

Waiting to sell your life’s work can lead to bigger risks and smaller returns. Recognizing the ideal time to sell doesn’t require a crystal ball, but it does require a sharp eye towards the market and an understanding of the various factors influencing and impacting your business’s value over time. The decision to sell your life’s work must be made with careful consideration of the current market conditions and the potential risks of delaying.

Timing is important when it comes to selling your business based on preparation. There is no perfect time to sell! Attempting to time the market is futile even at $20MM EBITDA. No two businesses are alike even within the same industry. When you’re prepared to sell anytime, you will be able to maximize your price and ensure a smooth transition. If someone tells you otherwise, they’re selling something! Let’s highlight the significant risks associated with delaying a sale.

Changing Tax Laws
Current tax laws can be favorable to business sales, offering various incentives and benefits that can maximize the net proceeds from the transaction. For example, capital gains tax rates might be lower, or there could be specific deductions available for business owners who sell. However, tax laws are subject to change, and future legislation could introduce higher tax rates or eliminate these advantageous provisions, significantly reducing the net proceeds from a business sale. The potential for change underscores the importance of capitalizing on current tax advantages. Selling your business within favorable conditions can help you secure a more profitable outcome.

Market Volatility
There will be unpredictable changes in the landscape that significantly impact the value of a business. Economic factors, fluctuations, inflation, and changes in interest rates, can cause variations in business valuations. Waiting to sell your business during declining or volatile times can lead to missed opportunities and a potential devaluation of your business. By selling when your business and industry is incrementally growing locking in a favorable market position avoids the risks associated with future downturns or sudden market shifts.

Diminishing Growth Prospects
Over time, business growth rates can plateau or naturally decline due to a variety of factors. These factors make it increasingly challenging to maintain the same level of profitability and margin expansion YOY. Industry changes, such as new regs or shifts in consumer behavior, can alter the competitive landscape and create barriers to growth. Additionally, technological advancements can rapidly transform markets, rendering existing business models obsolete and requiring significant investment to keep pace. Businesses that fail to adapt quickly may find themselves becoming less competitive, struggling to attract new customers and maintain current customers. Incremental erosion of growth will diminish the overall value of your business, making it more difficult to achieve a favorable sale price.

Deteriorating Assets
Over time, the physical assets of a business, such as equipment, machinery, and property, can deteriorate and lose value. As these assets age out, they become less efficient and require more maintenance and frequent repairs, thus increasing operational costs. Technological debt – older outdated tech platforms and systems may no longer support the latest software – poses operational and security risks. The cost of maintaining or replacing these assets can be considerable, eroding profits and diminishing the business’s overall value. Additionally, some buyers may view the deteriorating assets as a liability, reducing their willingness to pay a premium price for the business.

Reduced Motivation
A significant decrease in enthusiasm for work, the company and its people leads to burnout. It often leads to a significant decrease in enthusiasm as the daily challenges and stresses accumulate over time. This reduced motivation manifests itself in ways, such as decreased innovation, slower decision-making, and a lack of strategic focus, all of which negatively impact performance. When a business owner loses passion and drive, it becomes difficult to inspire the same level of commitment and energy from employees, leading to lower productivity and potential declines in service quality. Maintaining passion and drive is essential for keeping a business thriving and competitive in the market. One of the less spoken topics in selling life’s work is legacy. Behind top price and new owner taking care of employees is the owner’s legacy. It’s a big deal and if the seller’s motivation is or has declined it may be too late if not salvaged quickly.

Employee Challenges
A significant risk is the potential for key employees to leave if they sense instability or uncertainty about their future within your organization. High-performing and high potential employees gravitate to stable environments and clarity in go-forward prospects. When an organization’s climate and culture have an air of anxiety, declining production and strained communications, employees will become disengaged, and some will seek employment elsewhere. Diligence will uncover unfavorable results from employee turnover, key personnel satisfaction, rising recruitment costs, days to hire, increase of voluntary turnover and more. These stats can severely disrupt business operations, leading to increased costs and loss of valuable institutional knowledge. Furthermore, unfavorable trends negatively impact your business’s reputation and diminish its overall value, making it less attractive to potential buyers.

The Time is Now

These disadvantages have real-world consequences by the businesses that delayed their sale or procrastinated preparation realizing significant losses. There are hundreds of failed cases that underscore the urgency of selling now vs. later. Acting with urgency and confidence will help you lock in a favorable market position, ensure a smooth transition, and maximize the value of your business, and ultimately a successful sale.

Our only ‘don’t’ is don’t wait until risks become a reality. We know what it takes to navigate the landscape of complexities in selling your business. Our #1 goal is to get you the highest price! We don’t accept every opportunity that crosses our path either. Our second goal is to educate our clients, so they are well equipped to make informed decisions on when to sell. If you’re moderately prepared, then it’s time to fine tune your enterprise. If you’re unsure when and where to start, understanding the risks associated by delaying or never deciding ensures you will miss a favorable window of opportunity.