The difference in valuation can be significant at time of exit
In our work, we regularly come across small to mid-sized companies that are ideal for supporting the life style of the owner, but not ideal for attracting interest from a third party acquirer.
The difference can be found by asking yourself questions like these:
- How reliant is the ongoing growth and success of my business on me personally?
- If the answer is a lot, you might have a life style business
- Do I withdraw through payroll or distributions the majority of the money my company makes or do I continue to invest in my business and leave sufficient levels of working capital in the company to enable it to grow?
- If the answer is yes, you might have a life style business
- Does my company have good financial controls and sound planning disciplines in place that help us as we scale up the business?
- If the answer is no, you might have a life style business
- Am I building a company that can continue to scale up even in the hands of a new owner?
- If the answer is no, you might have a life style business
A life style business can be wonderful in helping a private owner live the life they want. No one is going to begrudge that. But, if the desire is one day to attract a third party to come in and pay a premium price to take your business over, then you can’t present them a life style business. Reason is they will have to invest to move it beyond being a life style company and associated with this comes risk and acquirers don’t like risk.
Talk with your advisors, give us a call (949.874.0787) if you’re wondering if you might have a life style company and whether it could impede you from achieving a sale one day to a third party. Use time as a friend to evolve your business to one that will attract the interest of multiple acquirers and get yourself on the path to a euphoric future exit event.
