Money off the Table – How a well-timed liquidity event can change an entrepreneur’s life
In my 40-year career I’ve been directly involved in over 50 companies. While too many casualties to list, by far the most successful was F5 Networks where I was involved in its inception and the raise of its seed money investment. Today its market cap is $8 billion.
I was a CPA with the now extinct Arthur Anderson CPA firm, served as CFO, COO and CEO in private industry over a 10 year period, became an adjunct professor of entrepreneurship, and founded an NASD registered broker-dealer investment bank and $100 million venture capital fund. Today I am a Managing Director of the Alexander Hutton M&A advisory firm putting all that experience to use assisting entrepreneurial business owners in obtaining liquidity and financial payback for all their years of hard work and risk taking.
Over these years I have also experienced and lived through three major unexpected global economic disasters, two man-made from greed (the Dot.Com Bust in 2000 and the Great Recession in 2007-2009) and one an “act of God” (the Coronavirus Pandemic now in 2020). All three of these events have been terribly destructive, resulting in millions of businesses and personal fortunes forever lost.
I have learned a lot from all these business and life experiences, but one very important lesson stands out. Too often entrepreneurs and business owners wait too long to create a life changing personal liquidity event from their successful businesses. Negative uncontrollable disasters (like above), and sometimes controllable management mistakes, create a total loss of the business, or most of it, to never fully recover again. I have seen it time and time again, where what could be a positive life-changing opportunity becomes a life-long regret.
So my advice today is this - if any business owner has a solid, profitable business, especially if it has reached at least $2+ million of EBITDA per year (usually the minimum for most buyer PE firms, strategic buyers, and Family Investment firms), then strong consideration should be given to selling a portion of the ownership (“taking some money off the table”), or even selling the entire business. There is more PE investment capital available today than I can ever remember. It is unprecedented - and the Coronavirus Pandemic has not dampened the strong buyer demand, nor have business valuations been meaningfully discounted in many business sectors.
Here is the real practical thing to think about. If you could sell part or all of your company today and create, for example, a $10-$15+ million personal nest egg for yourself and your family’s future financial protection, it is truly a life-changing event that provides you financial freedom for the rest of your life. No more worrying about the risk of losing all or most of it and living with the regret.
Yes, there are offsetting things to think about, such as in a partial sale losing control of the company to a majority buyer and having to report to a Board of Directors, etc. or the emotional aspect of selling your “baby” that you have worked so hard to build. However, many of these potentially concerning terms can be softened and made reasonably acceptable during the negotiation process, especially if you, as the seller, has a good and well qualified M&A Advisor engaged in the transaction to assist.
My advice is to continually ask yourself, “Is it time to take advantage of the “bird in hand” and mitigate the downside risk of a total or major loss?”