Now some of you may have been aware of a market correction from 2008-2011 and this comparison is about the effect of time on your plans to harvest your business.
Both owners saw their revenue contract but they took difference approaches.
After two quarters of contraction, Owner A (aka “Mark”) talked to his advisors and sounded out a plan for actively pursuing the harvesting of his company. He engaged an expert and conversations were started with a number of well-chosen/qualified buyers.
Owner B (aka “Tom”) wavered between wanting to be out – but not giving up the sale price he had in his head. He decided to slog through this tough patch to get the full 4x ‘07 earnings.
Mark made a successful transition from the business and went on to engage in all of the things he liked and never had time for while running his business. While he had to mentally let go of significant lost earnings (a primary valuation factor), he retired from the business with some cash and a stream of revenue that let him fill his days with grandkids and the other things he enjoyed in life.
Tom saw earnings continue to contract and the further it fell the more determined he was to get back to ‘07 numbers.
I was told he tested the waters in ‘10 and all he found were bottom feeders looking to score a cheap deal that wasted allot of his time.
Tom is still working his company but I fear that his shot at an enjoyable retirement might have irrevocably slipped from his grasp. Time is now his scarcest resource.
What can we learn from this?
Time is your friend if your options are improving or earnings are increasing.
Otherwise, time is your enemy. Downturns affect earnings – and earnings are what multipliers multiply!
The second thing is that getting hung up on your own formulas and numbers can be a dangerous thing.
Remember, a business is worth what someone will pay for it. Period.