Holding period

Definition

The number of years between buying a business and selling it.

Why It Matters

A return is a rate, not a total, so the same gain is a different answer at four years than at ten, and that rate is what an investor is solving for before a price is agreed. It also decides what the paperwork has to survive: a seller note amortizing over seven years outlives a five-year hold and has to be settled out of the sale, and a preferred return compounds every year the hold runs. Searchers who plan an exit plan the hold first, because almost every other number moves with it.

In numbers: A business bought for $5M and sold for $15M is 3x either way: about 32% a year over a four-year hold, and about 12% over a ten-year one.