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Why not take the money and run?

What’s Going On?

Liquidity is “top of mind” for many owners. There is an abundance of strategic and investment capital and solicitation calls are constant. If a family owned company has a good earnings record and a clean balance sheet, there is no shortage of opportunities to sell. For these and other reasons, some owners have decided to take the money and run. In this market, at these multiples, perhaps they are the smartest people in the room. 

A Conundrum

But what if you don’t have “exactly” the track record that attracts investment?  What if there is no family successor and the rest of family doesn’t want to (or can’t) run the business? If the business has been making money (but not a lot), do you spend time to fix it? What happens if you sell an underperforming business at a moderate price? Will you have enough to live on; what will you do after you sell it? These are all tough questions and they need answers.

Living in limbo

It is not surprising that some owners are stuck. With low inflation and low interest rates, these owners are deferring tough decisions. If things are not falling apart and if the family earns its living through the business, the combination can create a barrier to change. Emotionally and financially, owners may not be ready to give up control, sell, or disrupt the family status quo. They sit tight and that can work for a while. And then things change (as they always do). Businesses need active management. The question is: what happens now?

Staying at anchor is not the answer

Life can appear simple and “doing nothing” has always been a strategy, even if it is unintended. The risks are rarely quantified and it is usually easier than “doing something”. But, the world doesn’t stop, even if it isn’t obvious.  If you stay at anchor, barnacles will grow on your hull and you won’t be able to move. It is an insidious process. Consider the options and “do something”. The discovery process is worthwhile and you may have more options that you think.

Make a good business more attractive, whatever you do 

A number of owners with good businesses are discovering why other people really want to buy them. Rather than sell or accept a partial buyout, these families are hiring other people to run their businesses. They are setting up Advisory Boards, doing estate planning and viewing the business as “their platform”. They are hiring leaders who have similar values but are not trapped in the past and have excellent management skills. In short, they are doing what most acquirers would do, improving the business and adding value. This takes initiative but it preserves options and continues the tax advantages of being a private company. And, in many cases, it relieves the pressure for those who are tired of being at the helm but don’t want to give up the ship.

`Make the right decision, it’s’ yours.  

You might ask “what’s wrong with this picture”? Nothing,  assuming that the business has “legs” and that significant technology or capital infusions are not imminent and that financing is available(other than equity). If you have a business that can grow, you have options.

What’s the answer? Consider all of the options with someone who can give you objective advice. With the benefit of an independent valuation, make the decision that fits for you. In the process, watch the call of the sirens(the market is hot for your company and won’t be later) and the land of the lotus eaters(Florida is a great place to live and play golf, all day) Remember, Ulysses stuck to his goals and pulled himself away, even tied to the mast. In the end, he got what he wanted, a return home. 

Well run businesses are always able to find new owners and the selling price is likely to be good if it has been actively managed. Don’t panic. Realize that it is not easy to start and run a successful business. If it were, more people would have done that. And the fact that they haven’t, should tell you it is harder than it looks. You have something of value. Your son or daughter will thank you if they take charge. Or, if you improve the business, get the value and cash that you need: “all the best”.  

Don’t simply take the money and run.

Terry Phinney