A company's immediate past 12 months are incredibly important as it heads to market for a sale. Scott Bushkie, managing partner and founder of Cornerstone Business Services, says the TTM, or trailing 12 months, for many buyers is the the best predictor of a company's future, which, after all, is what buyers are buying: the future.
This is something for owners to consider. It can be the case, Bushkie says, that owners decide to sell when they feel burnt out and no longer have a passion for the business. That, unfortunately, can affect valuation.
"Buyers aren't paying for what your peak was five, 10 years ago," he says. "They're paying for where you're at today and where the company can go from today when they buy the company."
He says a business owner who's been operating for 30 years, for example, who holds on to ownership 3 percent too long — a 12-month period — can cost them 30 to 40 percent value of their overall business. Or it could make their company not saleable.
"That's where making sure that you're ready, you're planning, you're focused and you're sprinting to the finish line or finishing strong," Bushkie says. "That's really what we want to see from these clients is take that last deep breath, finish strong, finish excited and then let someone else take it; kind of pass off the baton and let the next runner take it from there."
Another aspect of timing is the sellers age when they sell. In some cases, people wait too long, and that can limit their options, both personally and in their ability to get the most from the transaction.
Owners who wait until they're into their 70s or even 80s might not be willing to stick around through a transition. Where that owner is a significant part of that business — there's not much in terms of management depth or succession — it can lessen the value of the business to a buyer.
And even though people today are feeling younger as they age and live longer, selling late in life can limit what an owner can do once they exit their business. For example, if they have a bucket list, can they still achieve what's on it? Can they still get around and travel, play golf or visit family? In some instances, Bushkie says an owner's health isn't great and they can't do much else, so they stay with their company.
"We've seen people that just, at the end of the day, even though they get a value that's above the benchmark that they thought they were going to get, they just can't let go because they're like, what else am I going to do?" he says.
Bushkie spoke on the Smart Business Dealmakers Podcast about the importance of timing in the sale of a business, and offers both his insight and advice on how sellers can leverage timing to their advantage. Hit play on the podcast player to catch the full conversation.