When is the Right Time to Sell Your Buisness?

Over the past 21 years, I’ve bought 58 companies and built three empires for 9 private equity sponsors. I have billions in exits.

Now, I coach entrepreneurs and business owners to become empire builders in their own right.

One of the most common questions my coaching clients ask me: When is the right time to sell?

The answer to that has two parts.

First, it depends on what size your business is.

There are natural inflection points where selling (especially to private equity) makes sense.

For example, there’s natural sell points at $4 million, $12 million, $50 million, $100 million and $200 million in EBITDA.

Why?

Because PE firms are very disciplined and have natural “swim lanes” in which they operate dictated by the size funds that they raise and the typical equity check size they write when making equity investments in platform companies. With the average hold period being five years, one funds exit point becomes a natural entry point for larger PE firm funds.

Suffice it to say that firms with small funds buy small companies, firms with large funds buy large companies.  These entry and exit points represent natural boundries where multiples being paid in a given industry generally expand for the seller. As companies get bigger, they become rarer and command higher prices.

Of course, these inflection points are just one part of the answer to when to sell.

The other part of the equation comes down to what I refer to as the Rule of 130.

Add the percentage of your net worth that’s tied up in your business to your age.

If the sum is 130 or greater, it’s time to think about wholly or partially exiting your business.

I created the Rule of 130 to help entrepreneurs and founders mitigate risk.

If your number is over 130, you should be thinking about asset diversification.

You should be worried about the impacts of a bad economy, a global pandemic, a war, etc.

Any of these events could drastically alter the trajectory of your business or destroy it completely.

As a result, your net worth could be wiped out, and you likely wouldn’t recover before retirement.

So, there you have it.

Now, it’s time to take a good look at your own business, and ask yourself: Is it time to sell?

You can learn more about this topic by reading any of my 3 books - all #1 bestsellers, but this specific article was a brief snippet from Empire Builder - The Road to a Billion, available on Amazon or anywhere find books are sold.

https://www.amazon.com/stores/author/B07NLL55ZC