Best Time To Sell A Business
Selling a business can be one of life’s most challenging decisions. So much sweat equity has gone into building your business and there are often times, strong emotional attachment.
Many times people (non-business owners) will compare a business sale to that of selling a home. They are nothing alike and those who seem to think they are alike are simply misinformed. Homes are great and hopefully, we all love our homes but our businesses represent our passions, our victories and defeats, investments, and our livable wages.
Most people do not make a livable wage from their home; their home represents the bounty of a profitable business. Selling a business is difficult on so many levels.
When Is The Best Time To Sell My Business?
- Trajectory -
A business’s growth trajectory has a major bearing on the best time to sell a business. I need you to put on your stock investment hat for just a moment. Many, if not all of us have money invested in the stock market. As we monitor our investments or retirement accounts we see the prices/value of our stock picks go up and down.
When is the best time to sell your stock investments? When prices/value are at their max or highest peak.
All businesses have life cycles that are similar to our stock picks. Pierre Francois Verhulst created the Sigmoid Curve in 1844. The Sigmoid Curve shows a business life cycle from its early struggle, growth, and profit, it’s peak and it’s eventually decline.
A business’s trajectory is important to keep in mind when an owner is contemplating the sale of their business. Sell to early and there will be no profits for the business owner because the advantage is in the hands of the buyer. Selling a business too late, which is most often the case, makes it near impossible to find a buyer. WHY? The books will report to any potential business buyer during due diligence what is actually happening in the business.
Loss revenue, loss moral, loss margin share, and loss profits make any business nearly impossible to sell. Sell your business while it is growing and when profits are strong. Small businesses typically sell within the range of half of the annual revenue or a 2-2.5 multiplier of Seller’s Discretionary Earnings (SDE). When a buyer wants to buy a small business they all ask the following two questions to us.
1. How much money is the current owner making?
2. How long will it take me to get my initial investment back (ROI)?
- Timing –
A lot of factors impact timing; health, retirement, the US economy, industry life cycles, competitions, burn out and other interests. The aforementioned are all great factors to consider when someone wants to sell their business. One can see how timing impacts the best time to sell a business.
We typically meet with three or four business owners a day that is considering the sale of their business. Their motives for selling their businesses are vast but the actual timing determines the bottom line of how much money eventually ends up in their pockets.
Exiting a business should be a prominent thought in the mind of every business owner regardless of urgency. At some point, every business owner will exit his or her business. Unfortunately, some exits appear to be fire sales because of lost profits and foreclosure.
Proper timing also allows for savvy business owners to place their business on the market confidentially to test the market and interest for their business. Every business will eventually sell but careful considerations to the factors impacting timing allow owners to maximize profits.
- Local Markets
Local markets impact the best time to sell a business. Like the Gulf Stream in the ocean, local markets often move business-selling environments. There are hot markets and there are cold markets when it comes to business sales.
Raleigh, where we live is a very hot business market and there are a lot of businesses for sale in Raleigh because of the cities prestige, education, economics, population growth, and strong jobs market. People will often call us saying that “We are moving to Raleigh without a job and we’d like to buy a business.” Adults like these just want to live in Raleigh, NC because of the city’s popularity and charm.
Cities across the US that have a strong international community also have strong local markets. Many immigrants can come to growing markets meeting VISA requirements by owning a business. Austin, TX is a great example of a city that has a strong business market due to being known as an international city.
Best Time To Sell A Business?
Each business owner ultimately has to make the decision of the best time to sell his or her business. There are many determining factors to consider with each impacting the eventual business valuation. Remember that consulting with a professional business broker is strongly suggested.
There are seven steps to selling a business that needs to be carefully considered with your broker so that you understand the process and so that you can avoid potential pitfalls.
As always, contact us as your trusted business brokers.