Making your business valuable – The cycle of life in businessChia-Li Chien, Ph.D., CFP®, PMP®, CPBC
Chia-Li Chien | Nov. 08, 2013
I started my first business in the U.S. in 1993; a software consulting firm that specialized in financial modeling and financing applications for nuclear power plant bidding. At age thirty-six, I reached financial independence and decided to retire early. However, I quickly became bored and started my second business in 2005, helping small businesses to build value and reposition for a profitable sale of the business in the future.
Through experience, I’ve learned what impacts business value from investors’ or buyers’ perspective. But first, I’ll ask you a question that you most likely know the answer to—what are the three major factors impacting real estate value, marketability and desirability? That’s right—
LOCATION LOCATION LOCATION
I’m sure you’ve heard this before. So now, let’s ask ourselves, “what are the three major factors impacting privately-held businesses?” Logically enough—
TIMING TIMING TIMING
So what’s the big deal about timing?
When you are looking for what’s next, whatever that means to you, timing becomes crucial.
Personal Timing may include health issues, where you are emotionally and physically whether you are still energized by the business. You may be ready for a change, are looking for another spark, or are preparing for another economic cycle. A family situation, such as consideration for your spouse’s life desires, change in your personal situation, children or employees wondering what you do next can add to the pressure of determining the right timing. Just make sure you’re at the RIGHT personal timing when you consider moving on to what’s next.
Secondly, you must consider Business Timing. Is your business mature enough to have the VALUE that will allow for financial independence?
Third, what is the Economic Timing? What economic cycle are we currently in? In the other words, when is the right time to cash out profitably?
The cycle of business; the cycle of life in business
For the past twenty years, investment banker Rob Slee has studied the privately-held business buy and sell cycle. He revealed the following pattern in Midas Marketing 7 published in 2009:
This cycle correlates with the U.S. economic cycle. According to Slee, investment bankers will typically buy companies in distress around the third or fourth years and sell them about the eighth year or so. Accordingly, if we as business owners can predict the prime time to cash out for maximum value, why not plan in conjunction with this cycle?
The goal for you is to be able to sell at any time—profitably! That requires timing, and the time required for your business to have fundamental value for acquisition.
As a value-strategist, I feel as long as my clients know what their goals are, I can help with the timing. Knowing your timing makes the goals for you, the business owner, simple. Build the business toward what potential investors and buyers are looking for, creating a win-win situation for both parties. At the right time for you. That’s why you’re in business, after all.