Sell Your Business At A Time of Your Choosing
In order to get the best possible price when selling a business, it is best that the sale takes place during a time of the seller’s own choosing. The seller should be choosing – not needing – to sell. If the sale is forced, then the seller loses their negotiating leverage as far as the price and terms of a deal. A business seller may avoid this scenario is by heeding three possible warning signs that it is time to sell their business. Generally speaking, these warning signs are when the seller is having trouble keeping up with the growth of the business, when the seller loses their passion for the business, and when the seller is focusing on their imminent retirement.
Warning Signal: Seller Can Not Keep Up With Growth
At face value, one may think that not being able to keep up with the growth of one’s business is actually a good sign. After all, at least the business is growing! In reality, however, not being able to keep up with the growth of one’s business can be a dangerous warning sign that it is time to sell. Not being able to satisfy increased customer orders usually means that the business lacks the capital, supplies, employees, or infrastructure necessary to meet the demand from existing or potential customers. Unless the business owner has an identifiable solution, the problem usually festers. If the seller is lucky, then their business will simply plateau and stop growing. On the other hand, the problems may multiple and worsen. This in turn may even affect the ability of the business to meet the demand from their current customers.
Example of Seller Not Keeping Up With Growth
- Let us assume that Carol owns Carol’s Glass and Mirrors, which specializes in the sales and installation of specialty shower doors and mirrors for residential customers in Palm Beach County.
- Carol’s business is quite profitable, but she is becoming very frustrated at having to turn away customers.
- Carol can not find installers and does not have anyone (besides herself) capable or trustworthy enough to measure and estimate new jobs.
- Further, Carol simply does not have the time to oversee quality assurance and to run the office properly, and lacks the capital to hire the necessary infrastructure to do so.
- Making matters worse, Carol knows that she could easily double the business by setting up a second office in Broward.
- Given all the above, Carol wisely seeks the counsel of a professional business broker in order to sell her business.
- In short order, the business broker finds a competitor in the specialty glass and mirror business who jumps at the chance for an accretive merger.
- This competitor agrees to buy the business because they have the staff, infrastructure, and capital to properly serve Carol’s customers and reach new customers.
- Carol thus receives maximum dollar value for her business before her problems manifested into driving down the value of the business and making her potential sale less valuable.
- Carol may be invited to stay and work for her acquirer as a valuable consultant who started the company but wisely sold the business and let it expand to a level that she simply could not or chose not reach.
Warning Signal: Seller Loses Passion for Business
If the owner of a business wakes up every morning and dreads going to work, then it certainly may be time to sell the business. A common term for such an affliction is termed ‘burn out‘, and simply means that the owner of the business lacks the drive and energy needed to properly run a business. The ‘burn out’ may be caused by frustration and anger over the direction of the business, over dealing with staff, and over customers. The symptoms may simmer over a number of years before they eventually affect the owner’s ability to properly run and grow the business. A business owner that lacks the necessary drive and ambition usually results in lower revenues, earnings, and ultimately a lower sales price for the business
More Absentee Seller Means Less Chances of ‘Burn Out’
The more absentee the owner’s role is in the business, the less likely the owner is to be affected by ‘burn out.’ A relatively absentee owner has less day to day involvement in the business, and hence less chances of falling victim to day to day frustrations, boredom, or emotionalism. It is essential for a successful business seller to delegate as many operational responsibilities as possible. This will avoid long term ‘burn out’ and increase the business valuation (since the buyer will not have to replace the seller with paid staff or themselves).
Warning Signal: Seller is Focused on Pending Retirement
The best reason for a business owner choosing to sell their business – from a buyer’s point of view – is the seller’s pending retirement. This is because the buyer believes that a seller’s retirement is a valid and legitimate reason for selling (rather than being forced to sell because the business is suffering). The key to a successful sale under these circumstances, however, is selling the business before the seller’s desire to retire becomes too strong. If the business owner has ‘one foot out the door,’ then they usually can not properly focus on running and growing their business. It is essential to give the selling process at least a year before a business owner’s planned retirement, and seek the counsel of a professional business broker as soon as retirement is a serious possibility.
The best time to sell a business is when the seller chooses to sell rather than when the seller is forced to sell. Heed the warning signs in order to sell your business at the best possible time.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.