Every business owner knows one of the most famous rules of investing: buy low and sell high.
Yet when it comes to the largest asset many entrepreneurs will ever own, they often approach the decision very differently. When valuations are high, buyers are aggressive, and capital is plentiful, owners may hesitate to sell because they believe their business could be worth even more several years down the road.
That may be true. But there is another question worth asking:
Will buyers still pay today's multiple when you're finally ready to sell?
For owners of roofing companies, HVAC businesses, technology firms, pest control companies, manufacturers, insurance agencies, veterinary practices, healthcare businesses, and other successful privately held companies, today's market may represent an unusually attractive opportunity. Buyers continue to seek high quality businesses with predictable earnings, strong management teams, recurring or diversified revenue, and opportunities for future growth.
When multiple buyers are competing for the same type of company, valuations can rise quickly.
The challenge is that market conditions change.
A strong business can continue getting better while the valuation multiple attached to that business declines. For an owner who is waiting for the "right time" to sell, that distinction can have a significant impact on the eventual outcome.
A Great Business Does Not Guarantee A Great Multiple
Buyers are willing to pay premiums for businesses that offer something they cannot easily build themselves.
Predictable revenue. Strong EBITDA margins. Low customer concentration. Capable management. Limited capital requirements. Consistent organic growth. Strong market positioning. Opportunities for expansion.
And perhaps most importantly, a business that can continue performing without the owner being involved in every decision.
When enough of those characteristics come together, a company can command a premium valuation. In industries attracting significant private equity and strategic buyer interest, businesses that once traded at relatively modest multiples can sometimes command substantially higher valuations.
That creates a natural temptation for owners to wait.
If my company is worth 8X EBITDA today, why not wait until it is worth 10X? If it is worth 10X, why not wait for 12X?
The problem is that nobody knows where the top of the market is until after it has passed.
Multiples are influenced by interest rates, availability of capital, buyer appetite, economic conditions, industry trends, financing markets, and countless other factors that are outside an individual business owner's control.
The company may be performing better than ever while the market is willing to pay less for it.
Valuation Multiples Move In Cycles
History provides plenty of examples of industries experiencing periods of extraordinary buyer demand followed by normalization.
When capital flows into an industry, more buyers enter the market. Private equity firms begin pursuing platforms and add on acquisitions. Strategic buyers become more aggressive. Lenders become comfortable financing transactions. Competition increases, and sellers benefit.
Eventually, however, market conditions change.
Interest rates can increase. Financing becomes more expensive. Investors become more selective. Economic uncertainty causes buyers to demand greater returns. Private equity firms shift their attention toward different industries.
The result can be multiple compression.
Consider a simple example. A company generating $5 million of EBITDA at a 12X multiple would have an enterprise value of approximately $60 million. If the owner decides to wait and successfully grows EBITDA to $8 million over the next five years, that sounds like an outstanding outcome.
But what if the market multiple falls from 12X to 8X during that same period?
The company would then be worth approximately $64 million.
The business grew EBITDA by roughly 60%, yet the enterprise value increased by only about $4 million.
That does not mean waiting was necessarily the wrong decision. The owner may have enjoyed five more years of income, growth, and control. The company could continue growing. The multiple could recover.
The point is that growth alone does not determine the outcome.
Growth and valuation multiple have to be considered together.
What Can Cause Multiples To Fall?
Interest rates are one obvious factor.
Many acquisitions rely on some combination of debt and equity financing. When borrowing costs increase, buyers may not be able to justify paying the same price while still achieving their targeted returns. The business itself may not have changed at all, but the financing math has.
Economic conditions matter as well. During a recession, revenue may decline, margins may contract, and customers may delay spending. A company generating $5 million of EBITDA in a strong economy could generate significantly less during a downturn.
At the same time, buyers may become more conservative.
That creates a potentially painful combination: lower earnings and a lower multiple.
Buyer appetite can also change. The industry receiving the most attention today may not be the industry attracting the most capital five years from now. Private equity firms and strategic acquirers constantly evaluate where they believe they can generate the best returns.
Tax policy is another variable owners sometimes overlook. The headline purchase price is not the same thing as the amount an owner ultimately keeps. Changes in capital gains taxes, state taxes, transaction structures, and other considerations can affect the after tax proceeds from a sale.
Ultimately, the number that matters most is not simply what someone offers for your business.
It is what you get to keep and what you can do with it afterward.
Liquidity Changes The Equation
There is another consideration that becomes increasingly important as a business grows: concentration risk.
An entrepreneur may have a company worth $50 million but still have the vast majority of their net worth tied to that single asset. On paper, they are extremely wealthy. In practice, their financial future remains heavily dependent on one company, one industry, one group of customers, and one economic environment.
That is fundamentally different from having $50 million in diversified, liquid investments.
Selling does not automatically make someone financially better off. There are taxes, transaction costs, future investment considerations, and the loss of future business income to consider.
But liquidity does provide something that a private business cannot: flexibility.
Once capital is diversified, an owner is no longer relying entirely on the continued performance of the company they spent decades building. They may be able to pursue other investments, start another business, support their family, travel, retire, or simply enjoy the financial security that comes from having converted part of their wealth from paper value into liquid assets.
That does not mean every owner should sell when multiples are high.
It means liquidity should be part of the decision.
Don't Try To Pick The Exact Top
This brings us back to the original investing principle.
Buy low. Sell high.
The problem is that very few people consistently identify the exact top of any market. Business owners should not expect to do it with M&A multiples either.
Could your company be worth more five years from now? Absolutely.
Could EBITDA grow substantially? Absolutely.
Could the market multiple increase again? Absolutely.
But the opposite is also possible.
Your industry could experience a downturn. Interest rates could rise. Buyer demand could weaken. Taxes could change. A major customer could leave. A competitor could enter your market. Technology could disrupt your business. Or you could simply reach a point where you no longer want to spend another five or ten years running the company.
Those risks do not mean you should sell.
They mean you should understand them.
The better question is not simply, "Should I sell my business?"
It is:
"What additional value would I need to create to justify continuing to own the business and taking on the risks that come with waiting?"
For a 40 year old owner growing rapidly, with strong energy and plenty of time to build the company further, continuing to own the business may be the right decision.
For a 60 year old owner who has built substantial wealth in the company, is ready for a different chapter, and is looking at historically attractive buyer demand, the calculation may look very different.
There is no universal answer.
The Opportunity May Be More Valuable Than The Forecast
One of the biggest mistakes an owner can make is treating today's valuation environment as if it is permanent.
It isn't.
That does not mean today's market is necessarily the peak. It may continue getting stronger. Your business may become more valuable. Your industry may attract even more buyers.
But none of those outcomes are guaranteed.
At Exit Stage Left Advisors, we help business owners evaluate their companies not only based on what they are worth today, but on the factors that can influence their value, marketability, and exit options in the future.
The goal is not to convince every owner to sell.
The goal is to help owners understand what they have built, what buyers may be willing to pay for it, and what risks they are taking by continuing to own it.
Conclusion
You do not need to sell your business at the absolute top of the market to have a successful exit.
Trying to perfectly time an M&A market is just as difficult as trying to perfectly time the stock market.
What matters is recognizing when the combination of your business performance, market conditions, personal goals, and buyer demand creates an opportunity that makes sense for you.
Today's multiple may still be available five years from now.
It may be higher.
It may be lower.
What matters is that you do not build your entire exit strategy around the assumption that it will be exactly the same.
You have spent years managing the risks inside your business. As you think about your eventual exit, it is worth taking a closer look at another risk that is often overlooked:
the risk of waiting.
The best time to evaluate that risk is before you have to make the decision.
