Good Time to Sell Your Business?

The mantra of ‘buy low and sell high’ should be taken to heart by every business owner when it comes to selling their business. The best time to sell a business is when one does not have to sell, but does so because selling the business is the best option at the present time. The most common reason for selling a business is the pending retirement of the owner. Many business owners wish to sell their business simply in order to ‘cash out’ and use the proceeds from the sale of their business to take life easier. Other reasons include personal issues (such as divorce), health reasons, or a forced move. It is always best to sell at a time of growing profits, a favorable economy, and when the customer base of the business is as loyal as possible.

Understand Reasons for Sale

Understanding the reason for why one wants to sell their business will help the seller prepare their business for sale.
It takes time to sell a business (often up to twelve months), so a seller should be prepared to continue running their business during the lengthy sales process.
If the reason for sale is retirement or simply a need to improve one’s lifestyle, then the seller will typically have plenty of time to sell.
On the other hand, a ‘forced sale’ due to an unforeseen or unexpected personal or health issue may force the seller to take a reduced purchase price.
This is because the seller will simply not have enough time to wait for the right buyer – at the right price – to appear.
Further, a ‘forced sale’ makes a smooth transition to the buyer after the sale very difficult.
The buyer will want to know that there is a transitional plan in place so all of the customers, employees, and supplier relationships are retained after the sale.
A seller that is not able to effectuate a smooth transition after the sale typically will lead to a reduction in the purchase price.

Forced Sale

A forced sale of a business often results in the owner not receiving the same price as they would typically receive under normal circumstances. The business often is underperforming because of the external pressures on the owner. Also the seller will not have the luxury of time since they need to sell now! This results in the buyer having more leverage during negotiations, which will result in a lower purchase price. One way to prevent this from happening is for the seller to prepare their business to run in their absence in case of personal or health issues.

Sell In Favorable Business and Personal Environment

It is always best to sell during a time of ‘normalcy’ for the business and for the business owner.
Sell when the economy is strong.
Sell when one’s personal life is as stable as possible.
Sell when one thinks the business is doing great.
This will give the seller far more leverage when dealing with various buyers because they do not have to sell.
After signing a listing agreement, such sellers may simply run their business without disruption and wait for the right offers to appear.

Timing of Sale

When thinking about retirement, it is always best to give it at least a year to sell the business. This will enable the owner to wait for a sufficient time for the right buyer to emerge rather than having ‘one foot out the door.’ A business should be run without disruption during the sales process. In fact, business valuations are significantly affected by how the business is actually doing at the time of the sale, compared to when the business was initially listed on the market.

Focus on Running Business

A business owner should always be focused on running their business. Do not get distracted or make unsound business decisions while the business is on the market. This will only ultimately result in a lower purchase price. Let a professional business broker guide you through the process.

Call Martin today to get a FREE business evaluation!