The economy was hot and businesses in your industry were selling at high multiples of earnings. You decided to wait. After all, there was a chance the market would continue its upward trend.
Does that mean you have missed the opportunity to sell your business at the peak? Maybe. But should you care? Probably not.
The thing many of us forget is that when you sell your company—possibly your largest asset and the biggest wealth-creating event of your lifetime—you have to do something with the money you make.
That means you'll have to turn around and invest your windfall into an asset class that may be somewhat bubbly in historical terms.
Who Is Richer: Samantha or Scott?
Indulge us in a hypothetical example. Let's look at two imaginary business owners, each running a company generating a pretax profit of $500,000. Let's imagine that Samantha sold her business into the teeth of the recession for three times her pretax profit back in 2009. She would have walked with $1.5 million pretax to invest in the stock market.
Now let's imagine business owner Scott who decides to try and time the market. Scott waited out the recession and sold his business last month for four times pretax profit, walking away with $2 million before deal costs. At first glance, Scott looks like the winner because he sold at the peak and got four times profit instead of Samantha's three times. But when we take a closer look, Samantha would probably be better off today. Assuming she had invested her $1.5 million in the stock market in 2009, when the Dow was trading below 7,000 points, she would have more than $3 million just a few years later, or a third more than Scott, who waited and sold at the "peak."
Timing the sale of your business on the basis of external markets is often a zero-sum game, because unless you're going to hide the proceeds of a sale under your mattress, you're probably buying into the same market conditions from which you're selling out.
A Better Approach
Timing the market isn't a skill. Your better off optimizing your business against the eight things acquirers look for when they buy a business, regardless of what’s happening in the economy overall. Find out how you score on the eight factors that drive your company’s value by completing the Value Builder questionnaire here.
