I've recently been coaching a wildly successful entrepreneur who has received an extraordinary offer to buy his business: The would-be buyer is offering a price that's 12 times EBIDTA.
The owner would no longer be a part of his company, and there'd be a noncompete clause for a couple of years -- nothing outside the norm.
Sounds like a slam dunk to me, but the entrepreneur is hesitant.
Your Business Is Your Identity
Whether we like it or not, for those of us who have built businesses, they become like our babies. Our egos and identities become our business. And the thought of giving them up, no matter how good the price tag is frightening.
What will you do the next morning when you wake up? What kind of person will you become? Sure, it's exciting to think about going to the beach for a week or two. But, then what?
Despite his hesitation, I've been encouraging him to accept the offer, telling him another path will present itself. He's a bright man with a history of success -- the odds that his entrepreneurial "well" will go dry are pretty slim.
And if he doesn't want to lie on the beach, travel the world or sit courtside at NBA games, he can always take the time to begin developing his next venture.
Fortunes Can Change
I also encouraged him to watch the television game show Deal or No Deal.
To the uninitiated, the show involves a contestant being presented with 26 briefcases; the cases hold anywhere from a penny up to $1 million. The contestant chooses six cases to be eliminated, then receives an offer from "the Banker," which usually is an average of the value of cases still in play. If the contestant doesn't accept the offer, the game continues, with additional cases eliminated and further offers presented.
Of course, many contestants get greedy and play too long -- and get screwed when the high-value cases are eliminated, dropping the Banker's offers. Sometimes, you have to be happy with your good fortune. Something better may not come along, and there's always the possibility things get worse (or much worse).
Say that entrepreneur doesn't accept the offer and gets sued a month later for patent infringement. Or there is a fire and the business burns down. Or a competitor comes up with a superior and less expensive option. The truth is that the unexpected can be around the corner at any time.
It's Time to Sell
If you have an offer on the table, I encourage you to think long and hard about it -- and try to sort the emotional and rational components of the decision. Think about the financial security that the offer could extend you and your family, and work to separate that from your fear of what you might do tomorrow.
Sit down and write out all of the pros and cons on one sheet. Consider what you're most afraid and excited about.
Think through where your business is in the economic cycle. If it feels like your business is at a high-water mark, and buyers are desperate for deals, that could be a brilliant time to sell. If it's a buyers market and you're not in a rush to sell, then hold off.
Get good advice from advisors and mentors. Make sure you get a couple of different opinions and evaluate them against each other. And when good fortune smiles upon you, act upon it and look forward, not backward.