8 Factors that Best Determine When to Sell Your Business

Timing In Selling a Business is Everything  A business owner can spend his entire career developing a business

Timing In Selling a Business is Everything 

A business owner can spend his entire career developing a business until it becomes his “baby.” Selling can be the most difficult and emotional decision a business owner will ever make. It is filled with emotions similar to sending a child off to college or giving a daughter away at her wedding. The timing and reasoning for selling must be right. The reason for selling will also be a paramount issue for a prospective buyer. Fortunately, the best time to sell can be determined by 8 factors.

1.  Burnout / Boredom

If you have lost your passion for the business, dislike to go to the office, and cannot wait to leave, then you should re-read this book and begin formulating an exit plan. As burnout and boredom are the most common reasons for an owner selling his business.

2.  Retirement (age)

At some point in life, the time comes to reap the benefits of years of hard work. This is another common reason for sale in the industry. From a buyer’s perspective, this is the most justifiable reason for sale, which creates a comfort level when analyzing a business.If the owner does not have a family member to pass the business to, he is faced with the prospect of selling. Listing retirement at age 40 is not an acceptable reason to sell for most buyers. Conversely, a business owner retiring at age 50+ who has been in the business most of his life is an excellent reason for selling from a buyer’s perspective.

3.  Health 

Health is a very unfortunate reason for selling since it is usually out of the control of a business owner. Often, the sale must be quick because of a decline in sales and a void of top decision making due to less time being spent at the business by the owner. Structuring a deal for a quick sale due to the owner’s health does not have to be for a lower price. A seller can set up a low-down payment and longer owner note which will keep the sale price at the highest justifiable level, while getting the owner out quickly. You should be leery of potential buyers that attempt to get a bargain, because of a seller’s vulnerable position. 

4.  Economic factors

In addition to being ready to sell and having a solidly profitable business, the economic marketplace must have its “stars” aligned in order for it to be a good time to sell. An ideal scenario to sell is when there is a strong economic environment of low-interest rates, a growing stock market, a strong dollar, low inflation, low taxes, and a solid availability of capital. It is always a good idea to keep up with economic trends. While a bad economic setting does not help a sale, a good, profitable business will sell under most economic conditions: good or bad.

5. Lack of operating capital / Need for growth capital

If it were not for capital concerns, many business owners might never sell. There comes a point when the continued worry of funding accounts receivable, payroll, or the rent will push a business owner over the edge.  You say to yourself, “If I just had some more capital I could do X, Y and Z and double the business.” This is like burnout and many times the business will flatten out due to a lack of motivation. The salability will suffer as well as the sale price.

6. Industry overview

To know the future of an industry. If the industry is heading in a bad direction, it is wise to evaluate the options. It would be unwise to suggest that every time an industry dip or change occurs that an owner should think about selling, but a management style that has proven successful in one climate may be challenged in another. The most common response is “I can’t do anything about it, so why worry?” The more aware an owner is of upcoming changes in his industry, the more prepared he will be in evaluating his options. Informed sellers regularly attend local Chamber of Commerce meetings, annual industry conventions, read trade publications.  

7. Employee stability

Employees are most company’s key assets, so make sure to have a solid team in place before you begin marketing your business. It does not matter significantly if a low-level employee is lost, but once you lose a key salesperson or operation manager you will start raising eyebrows during marketing.  Nothing scares off good buyers more than key employees recently departing to the ranks of the competition. If selling is a near option it is a good idea to firm up relationships with key employees. 

8. Sales / Cash flow

“Cash flow is everything.” The main scenarios when cash flow is not “everything” is when the assets are the only value of the company or if a competitor is just looking at your clientele. When analyzing a business, prospective buyers and lenders key in on even the slightest slip in annual revenue and cash flow. Even an annual dip as small as 2% will cause a buyer and lender to start wondering if there are significant problems in the business. We have sold businesses with drop-in sales in two and three consecutive years, but the final negotiated sale price suffered as a result.

 

 

 

 

 

 

 

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