Founders need to consider many personal factors in deciding whether they want to sell their business and whether it’s the right time to sell. Firstly, you need to determine what your financial objectives are for a transaction. Do you want the highest possible valuation for your business or do you want the highest amount of cash upfront? These could be two very different outcomes. Acquirers often structure transactions where they will pay top dollar for a company but a big part of the purchase price is paid by way of a promissory note or in stock which brings a level of risk to the deal. Acquirers also often use what is called an earn-out which pays a lower valuation now but allows the founder to “earn out” a higher valuation based on company performance over anywhere from 2 to 5 years. Founders may or may not be up for this type of commitment even if they can ultimately earn a higher return. Founders also need to make sure that their valuation expectations are reasonable otherwise they could waste a lot of time and effort in trying to chase an unobtainable valuation for their business. It’s sometimes hard to be objective about your own “baby” so you really need to take a data-driven approach and look at market comparables with the help of an M & A advisor.
Other considerations are much more emotional. If a founder has invested 10 or 20 years in a business, they need to make sure that they are emotionally ready to sell their business and along with it, part of their identity. You need to carefully consider what you want to do with your career after you’ve sold your company. Another often emotional issue is whether a founder cares what the buyer does with the company, what happens to the corporate culture, the employees, and ultimately their legacy. Taking care of your employees to ensure that they have a home after an acquisition can often be a contentious issue and you need to be prepared for outcomes post-acquisition that you may not agree with.
Founders also need to think carefully about what role they will play in the new entity. Are you prepared to stick around for one or sometimes 2 years to integrate the business into the new organization? Do you want a long-term role with the business and are willing to be an employee of a much larger company? This can be a huge challenge for someone who has run their own show for many years and now has to report to senior executives or an external board.
Finally, you need to determine whether this is indeed the right time for you to sell the business or does the company needs some time to better ready itself for a sale. This could include repositioning or re-package the business or optimizing financial performance to maximize value. The best advice we can give you is to start planning your exit early, engage with your professional advisors for advice and have a clear picture of what you want and what really matters to you in doing a transaction.