Whether you’ve always planned to sell your business or you’re considering it after seeing how it’s grown, it’s challenging to know how and when to find a buyer. Contrary to expectations, the best time to sell a business is when it’s starting to take off, and not necessarily during a booming economy. Here’s what to keep in mind when considering whether to sell your business.
Are there good buyers for your business?
There will always be people looking to buy businesses, but you need a buyer who will give you the right price for yours. Ideally, you sell during a Seller’s Market, in which you have plenty of potential buyers. Of course, it’s a two-way street: Buyers are primarily interested in making money, so they’ll want you to demonstrate that your business still has room to grow.
Are the market conditions favorable to a sale?
If your competitors are selling, that likely indicates market demand for businesses of your size in your industry. The tide can turn quickly, so when buyers are eagerly seeking businesses like yours, it’s usually time to sell. Pay attention to market conditions in related industries as well. For example, if you run a commercial kitchen supplies company, you probably don’t want to sell while the restaurant industry is down.
Is the economy growing or declining?
If you sell during a recession or simply because you need the funds, it’s almost guaranteed that you will (a) have a smaller number of buyers and (b) have your business valued at a lower price. However, selling during a strong economy can be problematic as well, especially if your business has been booming. Buyers want to maximize their return on their investment, which means they may not be interested in purchasing a business that has plateaued. Ideally, your business’s growth is on track with a growing economy, so that buyers can anticipate a good return on their investment.
Is your business financially ready to transition?
In general, you’ll need at least three years of continual growth for your business to be appealing to a buyer. This timeframe is also the sweet spot for sales. Many business owners have started the exit process, only to hold out in hopes of yet more growth. As mentioned above, buyers are more interested in businesses that are on a growth trend. The economy ebbs and flows, so a nascent business that was highly attractive to buyers one year may be valued at much less the following year. That’s why it’s important to plan your exit during a time of continued growth, but before your business potentially plateaus or the economy takes a downturn. You’ll also want to be sure that you’ve resolved your business’s financial obligations.
Are you being honest about your business’s value?
When you’ve built a business from scratch, it’s normal to feel deeply attached to it — and potentially overvalue it when talking to potential buyers. Business brokers report that many owners overestimate their asking price. When preparing to exit your business, be aware that your financial health is just one factor among many.
Your business’s true value depends on overall market conditions, including the number of competitors in your niche, the profitability of your enterprise, and the distribution of your customers. Once your business is in the early stages of sustained growth, get a professional valuation so that you can prepare for transition with realistic expectations.
Are you emotionally ready to sell?
Finally, you should be in a good place — personally, mentally, and financially — to sell. Avoid trying to sell when you’re desperate for money or so burned out that you want nothing to do with the business anymore. In those situations, you’re much more likely to sell at a loss or end up regretting your decision.
Remember, reaching a deal with a buyer requires several months of negotiations, and you may need to recruit and lead a transition team. There’s no such thing as a quick exit from a good sale. If you’re selling out of desperation or fatigue, it’s usually a better idea to invest in automation services or other methods to reduce your costs, then wait until the business is experiencing steady growth. Selling your business should align with a period of growth in your life, just as it should align with an upward economic trend. And no matter what you do, ensure that you have a good team by your side to assist with the transition.
Selling your business for a good price depends heavily on good timing and honest valuation. With proper planning, your exit from your business can help you embark on the next stage of your life. Otherwise, you’ll likely experience more frustration than you would if you kept the business going.
To understand the correct time to sell, know your business’s financial health and the market conditions that favor a good sale. And remember: don’t wait too long. Tap into a pool of excited buyers at the optimal time to get a better price.