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I was blown away sitting in the audience at a conference listening to a panel made up of a private equity expert, investment banker and one of the most senior business consultants/growth driver/value advisor on the planet discuss selling businesses.
There was a ton of information provided and I involuntarily objected when the panel was about to be closed down…it was that good.
One of the comments that was made to the audience of business professionals focused on helping businesses grow and sell at improved multiples was this statement: “Lots of businesses shouldn’t look to sell…they should look to build an oil well”. Teeth shattered around the room as jaws dropped to the floor universally.
Here is my take on it for your (I hope) reading pleasure and personal execution.
Should you sell every business you start/own?
Maybe.
Should you be prepared to sell it? Hard and firm yes.
Running a business that is ready and prepared for an unexpected event that requires a sale is not only one of the best ways to enjoy best in class profit now…it also guarantees better options if and when you do sell.
Back to the oil well concept.
Further explanation provided was that often multiples at exit for many industries only provide up to a 3x at sale. The experts on stage reminded us that is only 3 years of revenue. Instead, many times it is far better for the owner to transition the business to an oil well that continues to produce income for the owner for the future.
Often, if set up correctly (one of my favorite things to do with clients) you can make more profit from running it better than you can from selling it now.
Don’t get me wrong here. I am inclined to always consider how we can repurpose capital for higher returns through partial and total exits if at all possible and appropriate.
You can’t argue with the oil well concept when you think of many businesses that either fail to sell/transition and/or have completely miserable owners only one year post sale.
My friend Micah and I spent 7 hours talking about that one sentence on our drive back from the conference yesterday and decided that we were going to create a consulting project around it. We have been working on finding a way to work together that we will actually want to do (making money is nice but we have to want to do it) and we landed on a really nice one that you will hear about later this year.
Think about this: if you own a business you already own the land that the oil well could be on pumping profits and changing lives. Maybe you don’t need to plan to sell it right away, but might enjoy having it producing results without much effort from you?
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