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June 21, 2019When is the Right Time to Sell Your Business? The 3 Determining Factors
Recently a prospective client asked me, “Justin, how will I know when is the right time to sell your business? Is it really possible to know?” Looking around right now we know the real estate market is up. Stocks are booming. This perhaps also encourages you to ponder the sell of your business. Determining your answer isn’t cut and dry. It needs to be broken down into a couple of different areas helping you answer your perfect time.
Personal Factors’ Effect on Selling Your Business
The first thing to consider is personal timing. How’s your energy level? As an owner are you struggling to keep up mentally, physically and emotionally? If that’s you, then now is most likely not the best time to sell your business.
Waiting until an owner is weary and completely zapped of energy only benefits the buyer. As an owner, you want to make a move when you can still drive up the hill. Never while you’re coasting down the hill. If a prospective buyer sees someone pushing the business and driving it to a maximum value, his enthusiasm to pay more will show.
The age of the owner is a big deal in these situations. So, an octogenarian (no offense to the 80-year-olds) doesn’t seem to have the energy to bring value to the company. A buyer may think they aren’t going to be around much longer, so why not just wait it out. On the other hand, if you got somebody in their thirties and forties on the cutting edge technology, the buyer will see a great deal of value on the future prospects of your business.
It might or might now be related to age, the health of the owner can also play a role as well. If his health is starting to decline, then so is the value of the business.
Another thing to consider is, how much the owner is involved? If the business runs correctly, there aren’t many hiccups without the owner there. However, if the owner’s hand is in every aspect in order to keep it running smoothly, then we got an issue.
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Another aspect to consider as an owner, is are you willing to stay on to help the business through the transition? If not, it may not seem as enticing for the buyer.
So when it comes to personal timing, you need an energy level that’s absolutely through the roof. You need to be on the younger side of the business lifecycle, personally involved in the business, yet not have the business depend solely on your presence. You need to be in good health, ready to stay on for counsel and be passionate about the business’s continued growth.
You may be thinking, “Justin, you’re crazy! That sounds like the worst time to sell!” This is exactly why it’s is the perfect time to sell the business if you want the most out of it.
Business Factors’ Effect on Selling Your Business
The next thing to look at is the business timing phase. Basically, where is the business at this point? Is it the growth stage? If so, you’ll get a better return for a business on an upward trajectory than one in the formative stage or in a state of decline.
Another important aspect to consider is how the business has fared from a historical standpoint. Many times, you can look at the particular industry of the business and see where it is at the macro level. For example, an insurance business. Many times, it may go through transformations based on demographics, or new laws passed. So, when someone looks at it as a future prospect, they realize it is the type of business that has a waiting list of people to provide goods and services to. That is the type of business that is going to yield a higher value for the owner based on the future prospects of service than those that may not have as much.
Market Factors’ Effect on Selling Your Business
The last thing to consider is market timing. Matters like the strength of the economy, taxes, financing, etc. In a strong economy, most times, you get a better value. On the other hand, if you have a weak economy and several people all trying to sell, you’ll end up with a depressed value. You should consider taxes too. If tax rates are really low, then it ups the value. Really high tax rates cause concern for sellers. Also, what is the debt financing structure looking like? Is money cheap? Is it easy? Are interest rates low? The lower the cost of borrowing money, the more apt people are to subsidize a business.
The answer to the question, “When is the right time to sell your business?” Use the factors to make the decision. The problem is, you won’t know when all the factors are going to line up. So, what you want to do is to build the business to sell. Have it as ready as possible for a buyer to purchase at any given point. Then when the stars, the moon, the sun, and the entire galaxy align, SELL! If you feel your business is NOT ready now read this set of articles about how to improve the factors that make your business even more attractive to potential buyers.