Buy, Hold or Sell: Maximizing the Value of Your Business

2007-8-2 21:46 From: Recharger Magazine

According to the U.S. Census Bureau, there are an estimated 7 million independent businesses in the United States, each of which has one or more shareholders. On average, more than 500,000 new companies are founded each year in the United States. Of these new companies, an estimated 60 to 80 percent fail within the first four years. Another approximately 20,000 companies declare bankruptcy each year. And, last year, more than 1 million businesses were sold, amounting to a staggering $600 plus billion in transactions. Figure 1 provides a graphic representation of these figures.


As the numbers indicate, companies have a greater than one in six chance of going through some type of ownership transition in any given year. Some of these transitions are decided in advance by the shareholders, and some are decided with little warning for the shareholders. Thoughtful and proactive shareholders will inevitably ask the question, "What is the future of this business?" And, while the answers to this question may seem infinite, the final or ultimate response leads to a modest universe of only three options: buy, hold, or sell. Shareholders who consistently answer this question correctly over an extended period of time can create significant value for themselves and the organizations in which they invest. Shareholders who incorrectly answer this question can, at the least, miss good opportunities and, at the most, destroy substantial value.