Three Lifecyles in Exit Planning

One of the key issues in selling or transitioning from a business is dealing with the issue of WHEN SHOULD I EXIT? In making this decision it is important to note that there are three different cycles that should influence this decision.

𝐋𝐈𝐅𝐄𝐂𝐘𝐂𝐋𝐄 𝐎𝐅 𝐓𝐇𝐄 𝐎𝐖𝐍𝐄𝐑
Each of the owners of a business has their individual time in their life that they would want to sell. This can be determined by normal retirement, impacted by the 5 D’s (Death, Divorce, Disability, Disagreement, and Distress) or driven by desires to do something different before retirement. Considering that many buyers want the owner to stay around for 1-2 years after the sale and proper preparation of the business for sale or transition usually takes 1 or more years, the planned exit date for the owner(s) should be adjusted for these factors.

𝐋𝐈𝐅𝐄𝐂𝐘𝐂𝐋𝐄 𝐎𝐅 𝐓𝐇𝐄 𝐁𝐔𝐒𝐈𝐍𝐄𝐒𝐒
Every business goes through periods of growth and perhaps decline. Some businesses continue to grow in size over time. Other businesses reach plateaus in revenue and profits. Selling a business should be done while the business is still in a growth mode. This will generate the highest sale multiple.

𝐋𝐈𝐅𝐄𝐂𝐘𝐂𝐋𝐄 𝐎𝐅 𝐓𝐇𝐄 𝐏𝐑𝐈𝐕𝐀𝐓𝐄 𝐂𝐀𝐏𝐈𝐓𝐀𝐋 𝐌𝐀𝐑𝐊𝐄𝐓
The lifecyle of the Private Capital Market is a chart of the multiples that Private Equity Group use in determining how much to pay for their investments. This is impacted by changes in available investor funds, which are often impacted by the economy and interest rates. These multiples have typically cycled up and down over a span of several years. Clearly the best time to sell would be while multiples are at high levels.

𝐁𝐀𝐋𝐀𝐍𝐂𝐈𝐍𝐆 𝐀𝐋𝐋 𝐓𝐇𝐑𝐄𝐄 𝐋𝐈𝐅𝐄𝐂𝐘𝐂𝐋𝐄 𝐂𝐔𝐑𝐕𝐄𝐒
The best time to sell a company is at a time when the business is still growing, the owner is approaching retirement and the multiples in the Private Capital Market are high. If the company has been growing and can forecast strong forward-looking growth and the multiples in the Private Capital Market are high, it may be better to sell before the owner would normally have retired.