At 51, Peter Koeppel knows that retirement is not far off, so lately he's been listening when investment bankers call to discuss buying his direct-marketing agency, Koeppel Direct. Even though Koeppel would like to continue working for several years, he says the timing is probably right to cash out of the business he has built since leaving the corporate world in 1995. "I have an interest because of what the investment-banking people are saying about the current environment," he says. "I wasn't looking to [sell], but you have to take it seriously if the number gets to where it needs to be."
That number-the sale price of the business-will likely be the largest single factor affecting Koeppel's financial health at retirement, so getting the best price is an important consideration. And for Koeppel, as for most entrepreneurs, the best price often has to do with the best timing.
"It's not so much when you want to sell as when the buyer wants to buy," says Taulli. "When you start to get unsolicited offers, the reality is, that's a good time to exit your business." Taulli believes that current economic conditions are helping many business owners get out at the top. There's an excess of money available in buyout funds, he says, which means sellers can get top dollar from financial buyers-those who are primarily interested in the return they can get from the business.
When searching for a buyer, entrepreneurs seeking to maximize the sale price are traditionally advised to look at strategic buyers-competitors and others who have a strategic interest in the business. That's not necessarily a valid assumption today, says Taulli. "Sometimes the strategic buyer is not the best buyer. There's just so much money right now that financial buyers are paying a premium."
If you're convinced that the market is hot and you're ready to sell, Menges suggests an immediate consultation with a trusted financial planner. Someone who knows everything about your personal financial situation will be able to help you negotiate the best terms for the sale of your company.
There's no one-size-fits-all solution, according to Menges. "It depends on how the rest of your finances are set up," he says. "You need to decide if you are cashing out in a lump sum or as an income over a period of time. That needs to fit with everything else."
The right fit, Menges says, will ensure that you can retire with both monthly income and longer-term investments. "Base income-such as an annuity from selling the business-helps you sleep at night," he says. But you also want to have assets like real estate, which can continue to grow in value over time. If your personal portfolio is already heavy in one of those categories, the best deal for you will help balance current income with long-term savings.
Of course, the right time to plan for your retirement and the sale of your business is when you're still a startup. But if you failed to do that, Taulli has several recommendations that can still help you get the most out of a potential buyer. First, make yourself obsolete. "If the founder is key to the business, you may get a lower value, or more of the payment will be contingent on performance," he says. Making the business run without you is a major milestone and key to exiting to a relaxing retirement.
Taulli's second suggestion: Do everything you can to maximize profits and cash flow. Most business valuations are tied to the amount of cash the business throws off each month, so there's rarely a good case for buying expensive new equipment just before selling out. And if you can show a buyer how most of the profit is recurring-how the same customers continually come back to spend money with you each month or year-your valuation is sure to increase.
Koeppel Direct seems well-prepared for the imminent exit of its founder. "I've always believed in hiring good people and investing in the infrastructure of the business," says Koeppel. "I've spent a lot on marketing, which has propelled our growth. But there are also strong systems in place." And Koeppel has purposely cultivated clients that can be relied on for repeat business. The company, which booked over $100 million in media in 2004, has served well-known companies including Ben Hogan Golf, DirecTV and H.J. Heinz.
Koeppel knows what companies like his have been selling for but admits he hasn't sat down to figure out the value of his own business. He's clearly torn between opportunities for continued corporate growth and locking in the kind of personal wealth that would let him retire and relax in style. "The market's the best it's been in five years," he says, as his entrepreneurial instincts start kicking in. "But things are changing-ad expenditures are going to the internet. I see dollars shifting, so we're getting more involved in that." Perhaps a relaxing retirement is not what he has in mind.
David Worrell is Entrepreneur's "Raising Money" columnist.