When Should I Sell My Business?
Business owners should consider two things when determining whether now is the right time to sell. The first consideration is a personal decision.
1. Does it make sense for me to sell the business right now?
Each business owner has different goals for what they want to do in their life. As such, they have different priorities in how much money they want to make and how they want to spend their time. Most business owners sell when they are ready to retire or they feel like they’ve taken the business as far as they can take it and are ready for the next chapter in their life.
Business owners have to come to terms with what selling a business includes. When selling, you often times will receive a lump sum of cash, but you will no longer have the same consistent salary, you won’t be able to expense things you normally would have through the business, and you will have to find something else where you can spend your time.
The second consideration is how to sell at a time that maximizes the sale price.
2. What factors contribute to maximizing the sale price of my business?
Buyers consider many factors when determining the price they can pay. Several factors buyers consider can help inform your decision on determining whether now is a good time to sell.
From a macro perspective, these are some indicators to consider:
- Industry - every industry is cyclical. Is my industry in an upswing or downturn?
- Interest Rate Environment - most transactions involve debt as part of the financing. Are interest rates at a reasonable level where a new buyer can use debt?
- Recent Transactions - more sale transaction activity is good. Have other relevant comparable sale transactions been taking place recently in my industry?
Focused on your specific business, these are some indicators to consider:
- Financial Performance - buyers want sustained performance. Does my business have a track record of at least 2 years+ where I can demonstrate a strong financial performance that a buyer can underwrite?
- Growth - buyers want growing businesses so they can eventually sell them for more money and get a return on their investment. Has my business been trending upward over the last few years, and can I convince a buyer that it will continue to grow?
- Strong Management Team - buyers want businesses that can operate efficiently. If I leave this business, will there be a strong management team left behind that can still run this business for the new buyer?
- Diversified Customer Base - buyers want stable businesses without customer concentration risk. Do I have a diversified customer base that can give the new buyer a predictable stream of revenue?
If you are interested in learning more about selling your business, I cover other topics here in more detail:
