BEST TIME TO SELL A BUSINESS
- I am at the peak of my game; I can’t sell now!
- The market is not right; I will wait for a better time!
- What about my family?
Do these statements define your thoughts? Are you ready for the next phase of your life? Do you wonder if your business can withstand the scrutiny of a sale?
Selling a business is both very personal and very stressful. You spent your life building the business and now you need to let go. The family may or may not be involved with the transition. Your decision will affect your employees, some of whom have become very close friends.
I AM AT THE PEAK OF MY GAME
Your business is growing. You barely have time to even think about selling the business. Revenue and cash flow are growing; sales are strong; customers really like your product or service.
Business brokers will tell you that the best time to sell is when your cash flow is showing steady growth over time. Investors will pay a premium for businesses that exhibit sustained growth of 20-25%. Specifically, if that industry growth rate is much lower. Businesses that show only 5-10% growth are nothing special from an investor’s perspective. Sure, a competitor within the industry may be willing to purchase the business at a lower growth rate, but there will not be a premium embedded in the final sales price.
Timing the market for a sale can net you a higher transaction price. However, how do you know when is the best time? Selling a business normally takes more time than you think. In fact, only 20-33% of businesses are ever successfully sold. If you are looking to sell your business at a premium to the market, you could be looking at 18 months to 36 months to prepare a business for sale and find the right buyer. Sure, if the price is low enough, you can sell the business in a 6-10 month time frame.
Given the length of time it takes to sell, is timing the market truly the best strategy for a seller? Market conditions change from year-to-year. If it takes 2 years to sell a business, there is a good chance that the market conditions have significantly changed during that period. Therefore, while market timing may be something to consider, it should not represent the primary reason for “not listing” the business.
According to the US Bureau of Census, about 90% of US businesses are family owned or controlled. Many businesses have family members who work within the business. Any sale or transition will affect the family. As such, it is extremely important to begin any transition discussions early. Understanding the needs and wishes of family members will be crucial in preparing the business for sale.
A business owner should also consider the roles that family members have within the current business. A buyer may or may not want to keep family members within their current roles. A seller needs to be prepared for this eventuality. Note, it also may be to the seller’s advantage to create a succession plan for family members. Some buyer’s may see family employees as a detractor to the actual value of the business. Putting succession planning into effect early will increase the value of a business to a potential buyer.
These are just a few of the considerations that go into selling a business. A savvy business owner will recognize the complexity in selling a business 2-3 years in advance of placing the business up for sale. He or she will put the plans, procedures, and processes in place in preparation for an eventual transition.
Working with a business coach or transition expert can help you identify the “skeletons in the closet” or the “potholes that need filled”. A third party coach will help you objectively identify the areas of improvement. Why would I need a 3rd party expert, if I can just do it myself? Good question. To answer it, ask yourself if you know all of the “skeletons” or “potholes” within the business today? More importantly, if they do exist, why have I not changed? A business coach will be worth the fee when the business sales price is higher than the original business valuation.
About the Author: Garrett Grega is a Certified Business Coach with FocalPoint Business Coaching in Branchburg, New Jersey, where he specializes in reconnecting executives, business owners, and managers with their business passions! Garrett has his own passion for supporting others through exit strategies and transitions. He has 20+ years helping international companies launch new products and processes. He previously spent 8 years launching LED lighting products for various lighting companies. His professional experience includes: strategic planning, business development, marketing, and product development. See more at www.garrettgrega.focalpointcoaching.com