Life and business are both like the harvests in that they run in seasons. And from this truism comes the saying that “there is a time to reap and there is a time to sow”. Harvests are most successful when the seeds and growth have occurred at the right time and the end product is ready to be plucked. While the seasons in nature are driven by weather, the seasons of business are brought in terms of economics.
A Change in Seasons
The Great Recession of a few years ago can easily be characterized as the economic equivalent of a frosty, winter season. This was a time when conditions for growth were not optimal. Since the natural tendency of most business owners is towards growth there was a different mindset – one suited to that season – which developed. This was a mindset of ‘sowing’ with the thoughts that owners could reap the benefit – i.e. a successful exit – during a season of better economic times, or full harvest.
Unfortunately, a change in economic seasons is not as easy to detect as a change in the weather. The reason that this statement is true is because the factors that influence a business transition are often not fully understood by owners until they engage in the exit process.
A Harvesting Season
The chart below indicates that today, we are in a Harvesting season – or in more appropriate terms – a Seller’s Market, or Prime Selling Time. Review the chart below to see the trends that each decade has followed and how this chart illustrates a Harvesting Season today.
The Opportunity to Reap What You Sow
If you have been thinking that you would one day look to reap the benefits of your hard work, then perhaps that day is upon you. A number of years ago, the advice to owners was to think about questions such as “who will run/buy my business in three years [when the markets recover]?” and “what capital will be available for my future owner / successor to buy me out?” Owners who asked and sought to answer those questions over the past few years are in a position today to look to either identify their next owner or to executing on plans to transition the business to an owner that they had previously identified.
The Manners in Which you Can Harvest
When it comes time to harvest, you will want to get answers to certain questions, such as “do you want to give up control in a transaction?” If the answer is “yes”, then a sale/merger or leveraged recap with a private equity group may be the right exit option. However, if the answer is “no”, then perhaps a sale to a co-owner or management buyout – perhaps accompanied by an Employee Stock Ownership Plan (ESOP) – may be the way to go to take some chips off the table and set the company up for future ownership.
How a Lack of Planning Can Impact What You Reap
Many owners will look at this current season as an opportunity to harvest their business profits and will attempt to do so without any planning. Many owners will simply try to transact with a party or hire a transactional advisor to identify a buyer without any level of planning. One of the challenges in failing to plan is that owners are not anticipating the information that will be needed by their buyers in order to close a transaction. Owners who do not plan are subject to many surprises during a selling process that could easily be addressed during a planning / preparatory process.
Moreover, a properly designed exit plan integrates your personal needs along with the needs of the business. So a comprehensive planning process will include both business and personal needs.
There truly is a time to sow and a time to reap. The decisions that you made over the past few years to sow the seeds for your readiness for an exit perhaps are now ready to reap a benefit to you in this new harvesting season. We hope that this newsletter accomplished the goal of having you think through your personal and business objectives to harvest your profits at a time that fits you from a business and personal perspective.