Those who begin to see the proverbial light at the end of the tunnel be it their retirement, the pursuit of another business opportunity or simply a desire to step away to do something different after umpteen years of ownership often ask themselves: Is there an opportune time to walk away?
The best time to sell your operation occurs when three key factors align: Your company’s prospects are bright. The market conditions are favorable. And you, without a doubt, are ready to move on to the next stage of your life.
Consider all three considerations one by one:
1. Is your business ready to sell?
Most potential buyers you encounter will be focused on three things. Does your company have a solid book of business? Does it represent good prospects for growth? And, is it valued reasonably?
Sooner or later in the selling process, you’ll have to open your company’s ledgers to show a solid book of business and demonstrate a sustained record of growth.
As for a valuation, there are many who, for a reasonable cost (or no fee at all) will provide a professional business valuation. It assesses a company’s market cap, earnings multipliers, book value and many other factors to determine its value — often provided on a low, medium or high scale.
In their article, When Is the Right Time to Sell Your Business?, inDinero notes that with this valuation in hand, you can better answer these questions:
- What is my business truly worth?
- What is my asking price?
- Can I justify it?
- What changes can I make now to increase the value of the business?
- Would my business continue being successful without me?
- What do the company’s stakeholders stand to gain and/or lose from a sale?
- Do I have a transition team in place?
2. Are market conditions favorable?
Much like the stock market, the mergers and acquisitions (M&A) outlook waxes and wanes in step with overall larger economic forces — sometimes in your favor, but sometimes not.
Look at your competitors in your industry. paying particular attention to similar-sized companies.
- How many have been sold or acquired over the last several years?
- How many of them are acquiring smaller companies?
Considering the economy from a larger perspective, in their article inDinero suggests that these factors figure into a favorable time to sell:
- A high rate of recent transactions closed
- High recent purchase-price multiples
- Higher-than-average strategic buyer activity
- Low taxes
- Low interest rates
- A strong economy
- Inexpensive debt financing
3. Are you ready to make an exit?
As inDinero’s article notes, “Ultimately, the success of your business sale rests on you — your actions, expectations and ability to endure the admittedly challenging M&A process. Before you start approaching buyers, be sure to make time for self-reflection.”
If it’s a matter of career burn-out, you might first try a vacation to test your resolve. Some return from a break rested, refreshed and ready to reapply themselves to their business. Others come back with the certainty that it’s time to move on.
The other major factor when considering selling your company is your life stage. No one (realistically) plans to operate a business forever. So, look at yourself closely as you examine the considerations noted above. Are you ahead of schedule in terms of moving on? Behind schedule? Right on time?
Per inDinero, “Depending on your age and cost of living, the decision to sell could precipitate your retirement, provide you with enough money to take a well-deserved vacation, or launch you straight into your next venture.”
