Selling Your Business? Time it RightBusiness brokers reveal how profitability, the market and your need to get out can spell “yes” or “no” for selling.
If you need to sell your business — you have sudden medical expenses to cover, or debts are piling up that you can’t pay — you may not have a lot of choice about timing. But if you want to sell — it’s time to cash in and retire or try something different — getting the timing right can put more money in your pocket.
NCR talked to two business brokers about the ideal timing of a sale.
Don’t rush it
Greg DeFoor, president of the Georgia Association of Business Brokers, said the best scenario for selling a company is having planned and prepared for it two to three years in advance. “The best time to sell is always when the owner wants to, instead of when the owner has to,” he said.
“The ideal situation would be to have at least three consecutive years of growth and profitability before you consider selling,” he noted. “However, that is not always possible due to the circumstances.”
Lara Van Pletzen of ROI Business Brokers said it takes an average of nine months to sell a business from the listing date. “Many think businesses sell as quick as homes do, but there is so much more that has to fall into place,” she noted.
Like DeFoor, Van Pletzen also recommended taking two or three years as a planning period before selling your business. “Look at all factors,” she said. “Speak to your financial advisor, your tax specialist, a business broker — even a business coach, perhaps.”
Know your value
When Van Pletzen first meets with a business owner considering a sale, she provides a complimentary consultation to determine a range of value for the company. “We earn our commission only on a successful sale at the end, so we won’t list anything that we don’t believe we can sell,” she said. “Sometimes that means telling a seller that they will be better off closing, and liquidating their equipment and inventory.”
When you sell, said DeFoor, the company should be profitable enough for the new owner to cover any debts incurred during the deal while still providing them with a living.
“The best time to sell is when you have sustained profitability, key managers that can run the business and a diversified customer base so you’re not dependent on only a handful of customers,” he said. Having these factors under control will make your business more appealing to potential buyers.
Consider the market
“Selling when the market for your business is hot is the most ideal time to sell,” said DeFoor, “but reality is an owner can’t always wait for that when retirement, burnout, health or other personal reasons dictate the necessity for a sale.”
He noted selling during an economic downturn is more difficult but not impossible. “Even then there are opportunistic buyers looking for a good deal.” It all depends on how much risk you want to take on, he added.
“If you want to maximize price, a several months-long decline in the overall economy might be an indicator to delay selling, but only if you are in a situation to weather a decline in the economy. Otherwise, it might be better to place the business on the market and accept a lower transaction price so you don’t have to weather a tough economy.”
Lower interest rates and a growing economy are obvious “green light” indicators that it’s a good time to sell, noted DeFoor. “Being in an industry that is in demand is certainly better than being in one that has plateaued or is in decline.”
Be willing to adapt
A looming mega-trend that imperils your business can induce you to sell — but selling isn’t always the right answer. “When threatened,” said DeFoor, “a company should evaluate external threats to determine what corrective action can and should be taken to minimize those threats.”
Selling out of fear can cause you to miss an opportunity for a grand success. “Adapting to change in one’s industry can be a good thing for a business if addressed properly,” he said.
“Mega-trends don’t necessarily indicate sell or don’t sell, but they may require a change in your business model to positively address those threats.” -Greg DeFoor
Knowing when the time is right to sell your company is very specific to each business owner, said Van Pletzen. “It is a very personal thing and there is no one-size-fits-all.” But consistent profitability and a solid market awareness will definitely help the stars align.