In another life, I managed a business media company specializing in the automotive industry.
This position gave me the chance to travel across Canada and meet many entrepreneurs with diverse profiles.
A fascinating observation emerged: the entrepreneur's lifecycle has a direct impact on the potential value of their business at the time of sale.
Let's simplify this cycle into four main phases: launch, expansion, maturity, and decline.
Contrary to what one might think, these phases are not strictly linked to age but rather to the entrepreneur's attitude.
Thus, clearly identifying where you stand can help you avoid many pitfalls and determine the optimal time to sell your business.
At the Top, Keep Moving Forward
Success is exhilarating, especially when sharing these successes with loved ones and your team.
Personal rewards, like trips, cars, or a cottage, crown years of hard work.
At this stage, your business is mature: it's profitable, stable, and your experienced team navigates daily operations with ease.
But beware, this period of prosperity should not be a time for stagnation.
To maintain your competitive edge, it's crucial to stay alert to market signals.
Today's success does not guarantee tomorrow's.
A business valuation is your starting point for a successful sale.
A fair market valuation helps you reduce your tax burden, maximize your company's value, and strategically plan for the post-transaction period.
GET YOUR FREE VALUATION →Anticipate Changes or Suffer Decline
Market reality is relentless: stagnation leads to decline.
Whether it's the emergence of new technologies, the departure of key talent, or evolving customer expectations, new challenges constantly arise.
Ignoring these changes means passively committing to a phase of decline.
Signs of decline can be subtle at first:
- Gradual loss of market share to new competitors
- Decreased innovation in your products or services
- Progressive disengagement of the management team
- Reduced investment in future growth
Calculate the Financial Impact
Let's take a concrete example to better understand the impact of this phase on your company's value.
Imagine Superco in two distinct scenarios: at full maturity and in early decline.
| Criteria | Superco at Maturity | Superco in Decline |
|---|---|---|
| EBITDA | $800,000 | $400,000 |
| Multiple | 4.5x | 3.5x |
| Company Value | $3,600,000 | $1,400,000 |
Even if the company remains profitable, a 50% drop in EBITDA combined with an increased perception of risk leads to a drastic fall in its value.
The multiplier effect is unforgiving: the longer you wait, the faster the value erodes.
Impact of decline on valuation:
- 50% reduction in EBITDA (from $800K to $400K)
- Decrease in acquisition multiple from 4.5x to 3.5x
- Total value drop of 61% (from $3.6M to $1.4M)
Plan Your Exit
To avoid this situation, working with a business broker allows you to determine the current fair market value of your company.
A good broker will also evaluate optimal tax strategies to maximize your net gain from the transaction.
Once this value is established, it becomes easier to carry out comprehensive financial planning with your advisor, clearly assessing your future income after the business is sold.
Some entrepreneurs will then decide to sell immediately, while others will opt for a multi-year strategy to optimize their exit.
Whatever your choice, it will be informed, proactive, and based on a realistic view of your assets.
Conclusion
Running a business is a full-time commitment.
Switching to part-time leadership, characteristic of the decline phase, can have disastrous consequences for your company's culture and value.
For a buyer, a declining business means increased risk, which inevitably translates into a significant drop in the sale price.
Avoiding this trap is essential: the best sale is always the one that occurs before your company's value is attacked.
Key takeaways:
- The maturity phase generally represents the optimal time to sell
- Entrepreneurial decline can reduce your company's value by over 60%
- Proactive planning with experts helps optimize value and tax aspects
- Sell from a position of strength, not necessity
