A Time to Reap

By Maurie Cashman

Time. The Great Equalizer. Economists and scientists will tell you that given enough time, all things will return to the mean. Financial experts will almost universally advise that you not try to time the market. The family business enterprise is no different. It may have long runs of prosperity followed by periods of struggle and often loss.

“For truth and duty it is ever the fitting time; who waits until circumstances completely favor his undertaking, will never accomplish anything.” Martin Luther

Last week we talked about the importance of not pretending with yourself, your family and your business stakeholders about important business and family matters. Part of not pretending is recognizing when it is time to sell a business that may have been in your family for a long time.

For more than a year, sellers have enjoyed the upper hand in negotiating price and other terms, bankers who specialize in such deals said. Especially following a period of belt-tightening during the financial crisis, the climate has spurred many family-owned businesses to explore sales with fresh urgency.

Now, there are signs the market could be “cresting,” said Andrew Greenberg, chief executive of GF Data Resources LLC, which gathers information on small private-equity deals. Companies are selling to private-equity firms at lower multiples of earnings, and valuations could flatten more if interest rates rise as expected in coming months, he said.

I have had some very personal experiences with this. I grew up on a small family farm. The farm had been in my family for well over one hundred years and had been designated as a Century Farm by the State of Iowa. My great, great grandfather had emigrated from Ireland during the Potato Famine and built a sod house less than a mile from the farm. My Dad bought the farm from Grandpa and did extensive work building and re-building the farm after a tornado wiped us out.

Then Dad got sick. And he was not going to get better. He hung on as long as he could. First he sold the hogs. Then he sold the dairy herd and tried to crop farm along with some off-farm jobs. He and Mom made it through the 80’s Farm Crisis.

Finally, he could no longer hold on due to his health. He made the decision to sell the farm. We had never done any real planning for what we would do when this day arrived. The planning went kind of like this: we have an offer to buy the farm. Are you interested in buying it or should we sell it.

We discussed whether I was interested in buying it or buying it with my brothers and sisters. I recognized three things: I did not want to run the farm actively as I lived over three hours away with a great job; I did not want my children to ever be faced with the emotional decision of selling a business that had been in the family for perhaps two hundred years; and finally that the 160 acre farm was obsolete.

Had I known that farm values were going to quintuple over the next twenty years I may have made a different decision. But we don’t have that information at the time that these decisions must be made. Since we didn’t really talk about it, we were not informed of some of the options we may have had for managing the farm.

Dad got what was then a very good price and I told him that he should sell. That was twenty years ago and I am still coming to grips with it. Looking back, I realize that I may have had much less time with my family, not had the business success that I have enjoyed, helped the people I have helped or made the treasured friends that I have. But I have a strong emotional tie to that farm.

There is now much talk of a newly-developing farm crisis. Commodity prices are down, farmers have indirectly leveraged by taking on higher rents as a result of the increase in land prices and they have invested in large equipment that only works if you can run it over many acres. Couple that with record low oil prices and the resultant pressure on ethanol and there may be a storm brewing.

There are business cycles to consider in every industry and in the economy itself. There are market and family forces at work that are beyond our control. Interest rates, stock market performance, demographics, liquidity, health, family dynamics and on and on.

There is a time to sell your business. As Luther said, the circumstance will never be perfect or perfectly known. The question is: Can we recognize that time, plan effectively for it and overcome the emotion involved to make a sound business decision?