At What Age Should I Sell My Company?

That’s a question I hear often. The easy answer… well, there is no easy answer.

A lot can be said about the individual who wants to continue working as they progress in age, but invariably the real question is not about their age as much as it is about their desire to retain equitable value.

I’ve seen business owners who’ve owned and run  their business into their 90’s. I’ve also seen 30+ year-olds tell me that they are “burned out”. So, how do you know if it’s time to go? That depends upon YOU!.

First, lets dispel a myth that says for a business owner to work, they can’t work after they sell their interest. A business owner can work as long as they like, either for the entity they are selling, or if that is not possible, for another entity. Most of these “Type A” individuals have dedicated their lives to their business, and enjoy challenges, being productive, thinking, and working in a team environment to achieve goals. When you sell your company, that is not something that can be easily turned off.

But the key factor, as noted, is not your age. Actually, its a point on the timeline that intersects current corporate value, age  of owner, an owner’s ‘effectiveness’, and a prospective buyer’s perception of risk.

Although no scientific study has determined a magical number, my opinion is that the confluence of those lines becomes much more clear the later in life you work. In fact, I have seen owners take a reasonable tumble in value the longer they wait; in one  instance having someone even pass away right while talking to Calder Associates after they realized they should have sold earlier.

Many times, I use the age of 68 to have owners really think of their “value” factor. It’s true, I’ve seen many 68 year old’s who could win an arm wrestling contest with a 35-year-old. But the issue isn’t just strength, it’s, as I like to think, the ease at which you can push a snowball … up a mountain.

As we get older, and after years in your business, the drive and passion of most business owners is “different” (notice I didn’t say ‘less’) than it was when they first started the company. That is likely true for any business owner at any age after a few years. But there are other factors active.

The most important of those is perception and risk. When an owner sells their interest, the buyer not only buys a going-concern, but they buy the knowledge and usually time of the owner to ensure they receive the value they paid for. As Ben Franklin  said, … “In this world nothing can be said to be certain, except death and taxes”. Because of that forthcoming and likely terminable event, buyer’s understandably know and feel that they are acquiring an asset that is becoming less valuable over each day after closing unless they can understand and transition the company to their new style of leadership. Rome wasn’t built-in a day – neither is a corporate transition.

Accordingly, you will see owners always thinking about that day they will sell all or a part of their equity, and buyers trying to determine when will they start taking on greater risk. For the business owner, it’s an inflection point where the mountain changes its upward angle and rolling that snowball becomes harder. Buyers perceive and believe that.

A company is made up of its people, products, customers, vendors, and processes. It’s also an understanding of how those work together that help define a company’s “secret sauce“. Buyer’s want to understand and know that, and Seller’s usually can’t specifically tell them. It’s second nature.

As age and time creeps up on an owner, the confluence of factors that diminish a company’s growth, effectiveness, and transitional value become ever more prevalent. Owners have asked me why then doesn’t a buyer take out a key-man policy to protect against any downside risk? Although in some cases they do, the cost of that policy could be large and it will be taken out of delivered cash flow in the form of a purchase consideration reduction. More to the point, buyer’s don’t want to get these policies inherently because their goal is to make GREATER CASH FLOW AND PROFITS, not just get a refund on their injected capital. Like you, the only factor they can’t prolong is time.

So, when you start thinking about your future and when you likely would sell your interest (we all do the day after we start or buy our company, admit it!) separate your emotional view from your economic one. Make sure to sell when the value is greatest and the road ahead is not one where you need twice as much effort each succeeding year to push that snowball up the mountain. You  can always work, but its easier to push a snowball up an increasingly steep mountain if you’ve received your money to buy a few $250,000 Snow-Cats!

Want to discuss your situation? Call me at 732-212-2999, or email at info@calderassociates.com.

Valuing Inventory – The Dilemma

When you sell a business, invariably, one of the most often asked questions are about inventory. The issue is that most business owners don’t understand how their inventory is to be ‘valued’ by a buyer.

The truth is that there are many ways to look at inventory value. You can say its worth what you paid for it (option 1), or what it is worth today (option 2), or what it should be to continue to run your business efficiently (option 3). these are three options you should consider.

Option 1 seems simple. You buy 1,000 widgets for $1.00 a piece, so logically, it should be worth $1,000, right? What about freight? What happens if you are a manufacturer, and some of your inventory is now in work-in-process? Does it also include the labor cost? These are not only good questions, but sometimes difficult to answer given the variations in business operations.

Option 2 seems somewhat illogical, but you do need to recognize the possibility that variations to inventory can be occurring. Take, for instance the value of highly commoditized stock, like computer memory. You could buy a 1GB inventory chip for $32/each per lot of 100 on a Thursday, and by Monday it may be worth $31.65/each per lot of 100. Since accounting rules require you to value assets at the lower of cost or market, do you continually revalue the inventory to have accurate financial statements? Likely no, but you can be assured that a buyer is NOT going to pay you for inventory that highly fluctuates for a value worth more than it is on the day of closing.

In option 3, you need to be aware of what is necessary to adequately run your business, and maintain it as a ‘going concern’. Although the rationale and details behind this are beyond the scope of this article, consider that many business owners and purchasing managers buy inventory and raw goods that are NOT in optimal quantities. For example, the business owner who purchases 1,000 widgets because he ‘received a  great price’ may make some sense, but on the day they sell the business, the buyer may only NEED 200 to keep the business running well. How much is the excess 800 units worth in that case?

These questions, and a myriad more exist. The challenge is to prepare your business to ensure that you receive the optimal value for your inventory.

Need to know your options, and how to handle it? Speak to an intermediary at Calder Associates that is well versed in inventory and tax requirements who can review the issues YOUR company faces. Get an idea of what is valuable in the marketplace and your role in achieving the greatest return.

Calder Associates announces the sale of Tri-State Grouting LLC

On August 4, 2014, Tri-State Grouting, LLC was acquired by Aqua Resources, unregulated subsidiary of Aqua America. Calder Associates of Pennsylvania was engaged by Tri-State Grouting, LLC and the Mergers and Acquisitions Intermediary. Susan Rosner, Managing Partner of Calder Associates of Pennsylvania initiated the transaction, acted as financial advisor and negotiated the Sale.

You can read the complete news release on Aqua America’s website by copying and pasting the following link into your browser:

https://www.aquaamerica.com/about-aqua/news/view-article.aspx?id=1746