I recently found myself in an audience of older business owners. Many were approaching retirement age, contemplating what a sale of their life’s work could look like. We were sitting before a panel of experts in M&A, Investment Banking, Law, Economics, Accounting, and Finance. The goal was to let business owners explore what an exit process might look like.
I was the youngest person in the room by a decade, and I was also running one of the smaller businesses. In the fall of 2020, a friend and I acquired our first Dog Daycare, Paws 'n' Rec. We bought it for a competitive price, and in the year since the acquisition, we’d grown it substantially enough to warrant another acquisition in the fall of 2021. We’re in the midst of growing that second operation and the thought occurred to me: we could probably sell our business now and make a quick buck.
I eventually worked up the courage to ask this experienced room: “I bought a business 18 months ago. We’ve created significant value, and I could sell it for far more than we’ve paid for it. Should I consider that?”
When selling makes sense
A guy sitting at my table told me his story of running a construction and development company for the last thirty years. He was toying with the idea of selling in 2006, right before the housing bubble burst. He wished he would have sold. Weathering that storm was terrible, and his business dried up almost overnight. He’d spent the last 15 years building the business back up when he could have been doing something, anything else. He was exploring another sale now, the business was thriving again, and he wasn’t about to make the same mistake twice.
“You never know what can happen, so maybe it’s better to cash out when you can,” he shared.
Others in the room asked me if the money would change my life? What else would I be doing with my time? If we sold, I’d have enough to live comfortably for a bit, to invest in and start other companies, but it wouldn’t largely change how I live today. We’re not talking private jet to Fiji-type money here. Would I start another similar business? If the answer is yes, why not continue down the path I’m on already?
The investment banker on the panel responded: “If you believe market conditions are so frothy right now, and that they may never be this way again, you may want to consider selling now and moving on to something else. If you think the market you’re in is growing and that you can continue to create value with what you’re building, AND this is a really interesting thing to do with your time, keep building. You’re young. What else are you going to do?”
And that summarized how I feel about it. I need to understand how the market perceives the value of my business and what it could mean if I chose to sell at any given time. That not only informs my decision to keep building vs. selling, but it also informs how I think about potentially acquiring other businesses.
The math for brick and mortar/services businesses is relatively simple - for individual locations, you receive lower valuations than for larger, multi-unit entities. If you can grow your business through acquisition or organic development, you’ll have a more valuable business.
With the help of Baton, I can keep a pulse on what my valuation means for me personally if I ever choose to sell. I can track how that changes over time, and continue to make that informed decision: is now the right time? Similarly, it will inform how I think about pricing potential acquisitions. Buying and selling a business is both art and science. Understanding the value of your business and others can empower you with the data you need to check your gut instincts.