How to time the sale of your business
This is a question which does not have a one size fits all answer as each business is faced with a unique set of challenges and the personal circumstances for each business owner vary. For some, deciding to sell is based on financials, for others, it could be a much more personal desire which drives them.
Cashing out on your investment
The financials are important; for most, the desire to make money is the very reason they set up their business in the first place. If you wish to realise the worth of your investment, selling your business can release a large sum of money which can be redirected to suit your needs. With this in mind, it makes sense to sell your business when it is riding high if you want to achieve the best price for it; a profitable business is a more desirable one in the eyes of potential buyers.
If your business currently has a substantial market share, industry competitors are likely to show an interest to increase their market share and industry presence. The importance of the financial gain generated from the sale will vary for each business owner as it could be as a result of personal circumstance or to fund alternative business interests.
A business with falling profits is unlikely to be as desirable, and those who are interested in purchasing this type of business will be looking to negotiate hard when it comes to price. If you have the risk appetite and experience to drive your business to a stronger financial position before listing it for sale, this could result in a substantially higher sale price and determine a brighter future for your business in the hands of a new owner. By contributing your efforts to administer the recovery of the business and attaining a stronger financial position, this is likely to bolster the reputation and financial value of the business.
Change in ownership
Regardless of how much you love your company, there often comes a time when you have to take a step back and properly assess what you are continuing to bring to the company. Many business owners who have built their company up from scratch may find that as their company grows their personal skill sets are no longer required in the role of owner.
For example, you may have exceptional sales skills that have been the backbone upon which your company has grown. However these days you have a crack sales team in force and you are left floundering in the face of complex financial decisions and HR issues. In this case, maybe it’s time to get a reward for all of your hard work and hand the reins over to someone who has the requisite skills to take the company through the next stage of its life.
Loss of interest
This is a situation that many business owners find themselves in. After years and years of hard work building a company up, they simply find that running it day to day has lost its appeal. This is a potentially dangerous situation to find yourself in, as once you have lost your passion for the business you are less likely to commit the time and effort required to circumnavigate challenges, source new opportunities, and monitor the minutiae required to keep your finances on track, and the inevitable consequence is bad decision making and the slipping of standards.
In this situation, it is vitally important for business owners to have the necessary self-awareness to recognise these signs before the problems really start, and to sell the business before profits start to fall and the business is no longer such an attractive proposition to potential buyers.
Other business interests
Again this is a situation in which business owners need to let go of their personal feelings. They may have a fantastic idea or concept, so good in fact that one of the market leaders comes knocking at their door. Whilst the idea of letting go of the business that they have worked so hard to build may feel like a bitter pill to swallow, but letting it go to someone who has the resources to invest to really make it fly, is actually the best thing for the business in the long run.
Retirement and succession planning
There are also reasons beyond the financial that may see you considering selling your business. Life events such as divorce or the death of a business partner may force your hand. Other personal reasons such as stress and the day to day running of the company becoming too much for you to want to deal with anymore are also compelling reasons. If this is where you are, then the timing is more about selling up at a time which is the best for you and your current situation. While getting a good price is still the main objective, the financials may need to take a back seat and become secondary to the necessity to sell.
If you have naturally reached the end of your tenure as a business owner due to retirement, the sale of the business is likely to fund towards your future, playing a key part in business succession and inheritance planning. On the other hand, you may be looking to sell shop due to health reasons, dedicating more time to hobbies, interests, or even parenthood. If you have a genuine reason to sell and would like to ensure continuity, selling your business as a going concern can be attractive to buyers as this reduces the amount of capital required to continue operations.
Maximising sale value
When it comes to getting the best price, timing is everything. The problem with this is that it is very difficult to predict with absolute certainty the future and what it holds for your business. However, there are certain trends you can be on the lookout for regarding both your business and the sector you are a part of as a whole. It is also easier to sell when the overall financial market is healthy and obtaining finance a relatively easy proposition.
If there is an upcoming tax rise which is likely to hit your industry, a forecasted decline in trade due to international relations, e.g. Brexit or greater industry restrictions which are due to be enforced, plan the sale of your business around these events to maximise value. Mitigating the exposure of your business to these events will help attract a buyer at the appropriate time and retain the financial value of your business.
Maximising buyer security
By presenting your business for sale at its strongest point and reassuring buyer security, they are more likely to make a reasonable offer. There is a variety of mitigating factors which can help uplift the value of your business, such as:
- Risk management: Spread the risk by diversifying customers, rather than concentrating your focus on a handful of large clients with high-value sales. By distributing the risk, if your high-value customers switch suppliers or become insolvent, this will not threaten the viability of your business
- Future potential – If your business has growth and investment potential and can multiply in worth with a business leader with the right business acumen in place, this may be the right time to sell your business, opening up the door for greater financial prospects and employment opportunities.
Business valuation and seeking professional advice
If you have achieved the necessary milestones to increase the value of your business to the best of your capacity, seek professional advice to pinpoint the best time to sell your business. A business valuation can help you gauge a possible asking price and help achieve market value or more.
At Selling My Business, we offer a free business valuation service to help you determine the worth and decide the right time to sell your business. The key factors which will dictate the best time to sell include your personal circumstance; your intended gain, whether this is entirely monetary or reputational and how fast you would like to see a return. We can offer specialist advice tailored to your situation based on 60 years’ experience in the trade of business transfer. Get in contact with the Selling My Business team to expertly market your business and prepare it for sale.