3 Key Principles for a Well-Timed Business Sale
There’s no shortage of information out there about selling a business. Some of it is true. Some of it is hilariously wrong. Some is downright dangerous. One of the worst is the promise of advisors to get “top dollar.” No intermediary can make these guarantees. Yet every owner wants this to be true.
Sell During Good Times
Owners most often want to sell when the business is struggling. Yet selling during an upswing is a surefire strategy for getting top dollar. After all, buyers want a big return on their investment. They’ll only pay for what your business is worth today, and rarely rely on owner projections and promises. That means your forecasts and past performance count for little, if anything. If you want the most money, sell when your business promises to earn a buyer plenty of cash.
Sell When the Market is Strong
In the Great Recession, business sales virtually stopped. Even those lucky enough to sell their business often had to do so at a steep discount, and with more unfavorable terms. Those planning an exit between 2009-2012 saw their dreams sidelined for many years. The market is excellent right now, but this portends nothing about the market of the future. Owners who think the market will keep improving are playing a dangerous lottery.
A favorable market is likely for the next two or three years, so business owners should take heed. If you’re considering an exit, the time to begin planning it is now. Markets always turn downward. This one is no exception. It’s coming. The only question is when.
Sell When You’re Ready
Selling a business is more than just a financial and legal transaction. You’re selling what may be a lifetime of work. That’s a hard thing to do, and letting go isn’t easy. That’s why it’s so important for owners to have a clear plan about what comes next.
Business owners frequently neglect retirement planning until the very end. So in addition to the emotional aspects of selling, you must also be well prepared for the financial side. If your business is more than 50% of your net worth, you might not be financially ready for a sale.
What steps have you taken to prepare yourself? The more prepared you are, both emotionally and financially, the better. This means that you can’t rush a sale, and you probably shouldn’t try to do it all on your own. Seek good advice from unbiased outsiders, and listen carefully to what they say—even if you wish they had a different message. Remember that your regular team might be great at what they do, but if they’re not experienced M&A experts, you could leave money on the table. Find advisors who specialize in sales, and who have seen numerous sales to completion.
Selling a business is a long and challenging process. It requires a willingness to plan, change plans, and to keep your eye on the prize. You must also be emotionally ready to accept advice and let go. If you’re not 100% there, you can’t expect to get 100% of what your business is worth.