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Published on January 17, 2000

Know when to sell your business

First of a two-part series Notice how many regionally dominant tire retailers are being acquired? With the coming feeding frenzy of consolidators buying regionally dominant retailers, it's important to recognize there are factors beyond your control that may drive the selling price of your business.

For example, in today's market the Dow Jones Industrial Average is at 11,000 and stocks are trading at more than 20 times earnings. Tire dealership consolidators obviously are trying to put together a critical mass that Wall Street will smile upon when they do an IPO (Initial Public Offering) and sell stock.

The multiple (earnings times some number) your business now can command likely is going to be much greater than if we have a correction and the Dow drops to 7,000 and the IPO markets go ice cold.

Therefore, you might get more selling your business at today's multiples than if you were to wait hoping to double the profitability of your company. Timing is everything, as they say.

Is now the best time for you to sell? Here are some thoughts for dealers thinking of selling and—more importantly—those who definitely don't want to sell at this time.

>From our perspective, we can't imagine a better time to sell a business than today with the Dow over 11,000 and a 20-plus earnings multiple. However, you should consult your own accountant and attorney before deciding whether now is the right time for you to sell in your unique situation.

The timing of when to sell has always been counter intuitive. When you most want to sell a business (emotionally), it's difficult to do so, and the offers you get often are a fraction of what you may want for your business. The emotional reasons driving most people to sell their businesses are the same ones that devalue the business and make it harder to sell.

Relentless and increasing price pressure that leaves operating profits thinner and thinner makes many dealers want to sell—and the results of such a sale usually are as much fun to watch as a bloody train wreck.

On the other side of the coin is the owner whose dealership is prosperous, growing and thriving. He's having fun and the fruit of his labor is just coming within grasp. He's like a golfer who struggled for years and finally shoots par: "Quit golf now? You must be crazy!" he replies.

However, this may be exactly the time to sell. The highest premium can be obtained when the owner least wants to sell. Buyers want thriving, growing businesses and readily will pay for this growth curve.

Ask a dealer whose once-thriving business now is for sale under duress. All say the same thing: "If I had known then what I know now."

One owner whose dealership we sold probably simultaneously was the smartest tire guy we've met and the dumbest seller of his business. During the early 1980s, when Michelin was dumping millimetric whitewalls at 40 percent off the company's best selling price, he bought a five-year supply. His competitors only bought a few months' supply. After they ran out, he still had warehouses full of the heavily discounted Michelins.

The dealer then advertised Michelins at a 40-percent gross profit—and his competitors couldn't get close. The dealership's market share grew by double digits and he rode that horse until it dropped. He sold off all those tires in about two years, made huge profits and grew his business tremendously.

Then he fell into hand-to-hand combat with national discount chains that had then come to town. They were operating on thin margins and public money. His market share shrank almost as fast as it had grown. In the end, he sold the business for about one-fourth what it might have commanded six months into his run with the special-priced tires.

When is the best time to sell? When you least want to.

Author's disclaimer: This article is not intended as advice. It is for information purposes only. The timing of selling your business is unique, and therefore you should consult your accountant, attorney and other qualified professionals familiar with your situation before making any decisions.

Mr. Williams is with Hansen & Jennings Consultants in Atlanta.

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