Company Performance - Sell at Peak Value
Selling at "peak value" is, of course, easier said than done. Most school owners will find it hard to consider selling when things are going well, but that could be precisely the best time to get out. A growing, expanding and smoothly running school will be most likely to attract multiple buyers, creating an auction-like atmosphere that will often lead to a high selling price. Too many owners wait until a major customer or key employee is already lost before trying to get out as well. Buyers will be aware of these types of situations and may use it against you in the negotiation process. The key to getting the most money is selling when the buyer can find few flaws.
We have all heard when investing in the stock market to buy low and sell high. Many school owners do the opposite when it is time to sell their schools. They say the school is doing well so they do not want to sell. What you should be saying is the school is doing well; I AM READY TO SELL!
Interest rates are low at the moment. While interest rates have been discussed the last few years as being nearly ready to rise, it appears that 2015 will be the year they do go up. The Federal Reserve has cautiously wound down its bond-buying program, and if school owners wait too long to sell, they could be facing much higher rates.
As interest rates rise, so does the price of capital -- leading to lower valuations. Many buyers will be using loans to make their acquisitions. Because earnings are used to pay the interest on loans, interest rates greatly impact, the multiple at which someone can afford to buy a school.
The more expensive it is for buyers to access capital, the less willing they are to pay a premium valuation. As interest rates begin to rise meaningfully this year, the more likely it is that valuations of schools will go down.
Most school owners sell because of personal reasons. The following questions may provide some guidance for you:
- Am I still having fun?
- Am I willing to make changes to grow the company?
- Am I investing in the latest technology to keep the company strong?
- Are there personal issues that need more attention?
- Have I accomplished what I set out to do?
- Am I getting tired more quickly?
We find that critical introspection of personal issues may prompt entrepreneurs to think seriously about selling their businesses.
The classic entrepreneurs who are miserable the day after selling is often a myth. We have found more often than not school owners who have interests outside of their school jump into these pursuits with the same enthusiasm they had when running their school.
The biggest mistake school owners make is waiting too long to sell their schools.
Do not be one of those school owners that receive nothing for all of their hard work.
If now is the time to sell, give us a call!