Everyone wants to sell their business for the best price possible. Doing so is a gigantic achievement. It also true that you cannot get the best sales price for your business without working closely with your advisors. You and the people helping you must be a team. And it is up to both of you – the business owner and the advisors – to allow the sale for the highest amount to happen.
The timing of the sale will also allow you to get the best possible price. Here are some factors to consider when trying to sell your business.
It’s about you …
There are two main personal aspects to being ready to sell. Are you ready emotionally? Are you ready financially? Many business owner’s usually don’t consider this fully.
Emotional preparedness is really an underappreciated part of the process. You have spent years – maybe decades – building your business. It is who you are. It is what you are. You must be able to ask yourself the question : can you give it up. Can you give up what you have done every day for years?
Equally important is what are you going to do with your time after the sale? If you don’t know what the step afterwards is going to be, you may go stir-crazy with boredom and regret the decision to leave the business! You can only play so much golf without the brain cells deteriorating. We have seen this before.
Of course, sometimes an owner is forced to sell because of health reasons, divorce, personal problems and so on. This isn’t ideal and the selling price under those circumstances will also likely not be ideal.
The best way to know if you are mentally ready to leave your business is if you know what you are going do after and are looking forward to it.
How do you know if you are ready financially ready? The answer is do you have enough money to do what you want after leaving the business? This probably includes taking care of your family too.
Business owners often ignore their personal financial needs by sending the money they make back into the business. This means you may have a less than diversified portfolio of assets – the main asset being your business. The pressure to sell the business at the best price possible becomes ultra-important in that situation. This is where a good advisory team becomes even more important.
How can you prove you are financially ready? While there are never any guarantees, there are financial planning techniques that can give you an idea of the chances of success. That your assets will allow you to achieve your post-exit goals. We can help with that and work with your financial planner in determining the survivability of your investment portfolio when you exit the business.
It’s about the market …
We have been working in the area of Mergers & Acquisitions for a long time. There are definitely better times to sell a business than others. This can be different depending on the industry and geographic location too. For example, after the 2008 crash and recession, it was a bad time to sell almost any type of business. A good time to sell an internet business was the very end of the 1990s. As you can see, it changes.
Is your industry “hot”? In the late 90s internet companies were so in demand they were even selling dog food (high bulk, low value) online. Mark Cuban made his fortune by selling his internet company at the right time back then. If he had waited we wouldn’t be seeing him on television as a reality star. The Dallas Mavericks would have a different owner.
Back in the same tech boom era I knew a high flying software company that was valued in the billions. One of the senior managers there was fired apparently for reasons of the politics inside the company. As you know, this often happens. As part of the severance the company bought out his share of the equity. He walked away with tens of millions. The “winners’ of the political in-fighting stayed behind. This high flyer company eventually went bankrupt and those who “won” the politics had nothing. Getting fired was the best thing that ever happened to that person. Because of the timing.
How do you know if now is a good time to sell your specific business? No one will ever know for sure when is the “ideal” time to sell. No one can time the market to perfection. If you sell don’t be afraid of “leaving money on the table.” The transaction market for businesses like yours may get better after your exit or it may get worse. But if you have met your financial and personal needs that is OK.
But you can tell generally if the market is good or not. Right now in 2018, is probably a good time to sell. The economy is good. Transactions activity is high, prices are rising and there is lots of capital looking for a place to be invested. These are all good indicators for 2018.
It’s about your business …
The best time to sell is when sales are increasing and it is making the most money possible. Sales and profits look like they will get even better in the future. Why is this the best for you? Because that is when you will get the most money.
I’ve worked on many acquisitions for clients. If we see a business that is struggling in some way then we know that it can be purchased for less money. It can then be turned around, with the new buyer pocketing all the gains for themselves. Buyers will not pay for future promises of better sales and profits when a business is under-performing. Do not let this happen to you.
Make sure you company is performing at its best. Clean up any problems in personnel, operations, sales & marketing, financial and so on. Have good, clean financial statements containing nothing unusual such as the owner’s personal expenses. Do the proper planning and preparation. Especially make sure there are no “land mines” lurking that will give the buyer an excuse to reduce the purchase price after being discovered in what is called “due diligence”. Make your company pristine and beautiful.
Then walk away with the highest selling price.
Closing Thoughts
Selling a business is a multi-faceted and complicated project. It takes a team of highly skilled people to help you successfully sell your business. To get the best price – the most money – could well depend on when you decide to sell. The list above helps with some direction as to the best timing.
