Electrical engineers have a useful way of defining what’s important and what’s not. It’s a great metaphor for a business owner trying to make decisions about staying in the company or selling.
Engineers define signal as important information being relayed over time or space. Noise, on the other hand, is any unwanted effect on the signal that reduces its visibility or clarity. (Think static on a phone line).
We see plenty of business owners who are distracted by noise when they should be focused on the signal about their company. The problem for many of them is they don’t know the difference. Here’s what I tell them.
The decision about when to sell your company is very personal and should be based solely on your goals and your plan. If you don’t have a plan for when to sell, it’s never too early to develop one.
Step one is to start conversations with your family, your partner, your financial advisor, and your accountant. Determine what your lifestyle plan is after you leave the company. Will you move to be closer to family? Downsize? Travel? Start a new venture? Or simply play lots more golf? The lifestyle you choose determines how much cash you’ll need. Quantifying how much you need helps you determine what your ideal selling price will be.
You’ll also want to factor in your age, health, energy, and family situation. Do you want to retire at 62 or 65 (or 50)? Do you have the energy to run the company for another five years? Will you still be paying for college for your youngest? Raising a grandchild? When you know the answers to these questions, you’ll also have the qualitative data you need to make a decision about when to exit.
Just don’t wait too long to make your plan. Twice within the past few months, I’ve been asked for a valuation of a company by the owner. Before I could send the documentation requests, I was notified in each case that the owner had died. Now the families have to take over the sale, during a very stressful time. I’m 100% positive that wasn’t at all what the owner hoped or planned.
A clear and well-thought-out plan is the signal you’ll be monitoring. If your company is currently valued at $2.5 million and the number you need to retire is $3 million, you know how much work it will take to get there. When you hit the number plus the right age plus the right circumstances, you’ll know it’s time to exit.
Everything else is noise. National politics, tariffs, market shifts, another pandemic – none of that should factor into your decision. Stay focused on what you can control and let the rest become background noise, whether it’s what’s happening now or what people say might be happening six months from now.
“Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present.” – Marcus Aurelius
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