Owners want to sell their businesses for for a variety of reasons - some want to retire and others are ready to move on to something else. Most owners ask - "is now a good time to sell?" Not surprisingly, the answer is, "it depends".
Here are three factors to consider when timing the sale of your business. Of course, it is best when all three are optimally aligned, but that is not always possible.
The State of the Owner
The owner is critical to the success and ultimate value of a business. Typically, once the owner is beyond his or her prime, the business value will begin to falter.
It is best to sell when the owner is engaged, still excited about the business and perhaps wiling to stay on after the sale. Likewise, the more youthful and healthy the owner the less they will appear eager to sell.
You want to be the owner that
wants to sell, not one that
has to sell.
The State of the Business
The value of a business is based on the economic benefits that a financial buyer can reasonably expect to receive from a business. All else being equal, higher growth companies command a higher price than their slower growing counterparts.
It is best to sell when a company is still on its growth trajectory and prospects are bright. Even better is when there is a proven track record and historic trends that support an optimistic outlook.
A prospective buyer wants to reap the benefits of the foundation you have laid - and they are willing to pay for it.
The State of the Market
Similar to selling a house, markets fluctuate. Optimally you want to be sell in a sellers' market, not a buyers'.
It is best to sell when the economy is thriving, money is plentiful and interest rates are low.
I don't know you or your business - yet. But the consensus is that
now is a good time to sell from a market perspective. The economy is strong, interest rates are low - but beginning to rise, and there is a lot of money sitting on the sidelines waiting for a good buy.
Looking at the graphs below, when do you think it would be best for this particular owner to sell his or her business? If you guessed when the owner is 54 to 56, you are correct! The business is growing, the external markets are good and the owner is still energetic and enthusiastic.
If you are thinking that you might want to sell your business and would like to discuss the optimal time for you and your business to transition, please give me a call. I would be happy to help.
