Most entrepreneurs spend so much time planning, building and managing their companies that they don’t actively consider and plan for their ultimate exit. Not surprisingly, owners want to sell when the market is hottest, and they are ready to retire. Yet life and market cycles rarely coincide. The risk is that once your company or its industry peaks, or market trends change which threatens growth, a seller may have missed the most opportune time to sell. Don’t wait until the economy or your niche evolves unfavorably, or an unplanned personal issue creates a company crisis.
Take straightforward but critical pre-emptive actions to prepare your company for a potential transaction. Then, create a strategy to match, and set the timeline to meet your determined benchmarks. Honestly evaluate your personal goals and issues, as well as your company’s industry and the broader economy. Plans are not set in stone and may need revision. Consider your desires and circumstances and plan accordingly. Early planning will help you determine the right time to sell and put you and your company on the path to a successful sale.
Knowing the precise time to sell your business is complicated, but taking the time to contemplate your personal situation and your desires for the future will help you gain clarity.
An important consideration in determining the right time to sell is whether you have achieved financial security and if the sale of your business will support your current life style. It is essential to factor in your existing debt and cash flow needs, including other sources of income and potential long-term expenses.
Maybe you simply want a fresh start based upon new business interests. Have you achieved your personal goals for the business? Maybe your original strategy was to build a business and sell it, or you seek the opportunity to cash out to enter a new venture.
A health issue may necessitate placing the sale of your business on a shorter time horizon than originally planned.
Lifestyle changes such as a divorce or the illness of a loved one may unexpectedly necessitate the liquidation of assets, including your company. An owner will want to avoid unfavorable circumstances causing a sale under duress, such as when the illness of a business partner compels a sale. Conflict with a business partner or family member is another common personal reason owners put their business up for sale.
Your stage of life is another personal factor. Perhaps over time the hours you currently invest begin to yield the desire for more personal time to pursue hobbies or personal interests. The challenge of owning and running a business may no longer be a priority, and you desire a less intensive, lower-stress life.
Life changes can be positive as you look forward to new horizons.
Various matters facing your company factor into the decision to sell, including the current stage of the business’ cycle, how the economy is faring, and who is at the company’s helm.
Often the best time to sell is when a company has a solid record of growth, and its market is expanding. Buyers purchase the future, and demonstrating a solid, consistent record of sales growth will make your company attractive to potential purchasers. Don’t try to time the market, or assume that a buyer will be naively unaware of the state of your niche or industry in the future when the outlook is not as strong.
A favorable economic environment, including low interest rates, is a strong factor pointing toward an advantageous sale. Has the business’s value increased significantly? An important preparatory measure to consider is having a business valuation prepared, so that you know your company’s worth if you receive an unsolicited offer to purchase your company. Can you take advantage of a low capital gains tax rate? A frothy mergers and acquisitions market, or strong activity in your space, portends to good timing for a sale. The key is awareness, preparation and knowledge of your company’s value.
Does your company need new leadership to bring it to the next level, or require significant additional investment to continue growing? A business owner must be honest about these dynamics and determine if finding a solution is preferable to a sale of the business. Consider whether you wish to invest the time and effort needed. Perhaps your skill set, or available capital, creates limitations that you are no longer willing to develop.
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For a seller, action is key. Planning and taking advance steps work in favor of your business, as well as your employees. Staying ahead keeps you in advantageous sales territory, where your company’s financial results and cost structure are positive selling points.
Maximize the opportunity for a rewarding sale, and avoid selling because of an ill-timed event or under extreme circumstances when your company’s value may be suboptimal. When timing conflicts between personal and business needs, an owner needs to review their strategic plan and synthesize the best compromise between dueling priorities.
Planning is key in determining the right time to sell, and determining your business’s value with a valuation is a critical step. When your preparation and strategy place the time to sell your company on the near-term horizon, finding an experienced advisor to assist your process is key.
If you have comments or questions about this article, or would like more information on this subject matter, please contact us, or visit our Exit Planning Library to find additional resources to help guide you through the exit planning process.
