Understanding When to Sell Your Business
One common misconception we hear from business owners all the time is that they don’t need to do a business valuation until they’ve made a decision to actually exit their business. Why is this wrong? Knowing your future goals is important, but it’s helpful to understand how selling your business is a process that can take from six months up to a year. The work doesn’t start when you decide you want to sell. That’s when it begins!
An Introduction on When to Sell Your Business
The decision to sell is an important step, but it’s helpful to think of it as one in a series of decisions. Who should I sell to? What time frame? And for how much? The list goes on. Thankfully, there are some common indications, both in the market and your business’s life cycle that will help you decide when it’s time to make a move.
Signs to Look for Before Selling Your Business
After investing so much hard work to achieve success in your industry, it might seem strange that the best time to sell is when your business is taking off. If sales are trending upwards, you’ve got a great team in place, and demand is strong, now it’s time to plan your exit. Owners always have a hard time with this one, and it makes sense. So much heart, passion, and sacrifice is invested in a company, especially one that you’ve started. Thinking about leaving or selling gets emotional for a lot of valid reasons, but the decisions you make for your future include preparing for the next natural step. That’s why it’s wise to start planning before you need to, even if it feels bittersweet.
When your business is doing well, this will be the easiest time to know the value of your business and prove it to a future buyer. Something buyers always consider is whether a business’s worth is tied up with the ownership or if the owner has created something that thrives outside of his or her influence. A successful business should ground its success independent of the owner’s capacity.
Part of getting a business ready to sell is also about sensing when a shift happens in the market. This means keeping track of the industry and where your business sits in relation to demand. As most people know, demand can fluctuate depending on market pressures and geopolitical circumstances. It’s important to know: is there any technology projected to disrupt your industry in the next six to 12 months? If a downturn is headed your way or a promising new company is entering the waters of competition with you, it might be time to sell. Staying ahead of where the market is heading will help you anticipate these shifts.
There is also the scenario of being approached by a competitor. This happens when you are taking over an aggressive share of the market or meeting a need that others don’t and competing companies take notice. A competitor, in many ways, is the perfect buyer to take over your business. They have insider knowledge of your industry and the existing infrastructure necessary to make the transition work. However, a business broker is an essential element to keep involved as you consider bringing in a competitor. Even preliminary conversations with an interested buyer need safeguarding for what kind of information should be disclosed, and when. Trade secrets, proprietary material, and other sensitive company information (including financials) can be involved when considering an offer and must be protected contractually should a buyer shift gears or suddenly disappear with more information than you hoped they knew about your business.
Lastly, a common reason for business owners deciding to push the eject button out of their business is from the instability of the market or personal burnout. Both are hard reasons to sell a business because they are motivated by challenge or hardship, but sometimes this is still the right decision. In the case of some business owners, they find themselves at a plateau. It’s not so much that the business is doing poorly, it’s that they’ve outgrown its challenges or desire to solve different problems and make investments of time and energy elsewhere. This fits the bill for thinking about making a move toward selling.
Business brokers can help you get ready for this step without the stress of feeling forced out of your business, even if circumstances like your health or energy level have declined. It’s best to take the chance you have and not feel trapped by your circumstances. At a bare minimum, getting a business valuation gives you a perspective on where you stand today. At most, it gives you a window into your future, to where you have been and where you are projected to go.
Understanding When to Sell Your Business
If you are interested in making a sale, find an M&A advisor or do your company valuation at least a couple of years ahead of your target sale date. Too early is better than too late when it comes to selling your business. A sale that feels rushed and unplanned discourages both the buyer and the seller to get the optimum valuation from the exchange. It is unnecessarily stressful to both parties and could leave important figures on the table as it relates to a sale. Taking on the process thoughtfully is as important as who you sell to and for how much.
Key Considerations When Selling Your Business
Timing is an aspect of a successful sale that we haven’t yet discussed. If the timing in the market is right, a business owner stands to make a considerable profit off his or her sale. However, if the timing is wrong or a downturn happens, the result could prove disastrous for a business owner who has waited for much of his career to cash out on this important sale. The impetus, however, should be less on what the market is doing and more on your preparation. If your financials are in order, if your people are prepared, if your exit plan is actionable and not forced or rushed, the probability of success is much higher.
Market corrections can happen. Some are unavoidable. But if you prepare for every variable within your control, you increase the chances of the sale being successful. Selling is a bit like investing. There are good times to sell and there are bad times to sell but the market isn’t everything. A business’s timing in the sale must also be aligned with the owner’s goals first. Then, you can worry about what the market is doing.
Selling Your Business with Coachwell
To recap, there are several important factors to pay attention to when it comes to selling your business. Here are some reliable signs a business you own is correctly positioned to sell: you are experiencing success with your business model; you notice a shift in the market that presents an advantageous opportunity; a competitor approaches you with an offer, or you are simply ready for a life-change. To get someone in your corner to raise the profitability of your business and put yourself on track to a successful sale, talk with one of our business growth experts to get a valuation.
