When is the Best Time to Sell Your Business?
June 14, 2024
Last fall, I attended a lecture about the psychology of business owners. The speaker informed us that business owners like to be in charge and in control. It really hit home with me. Many of us went into business because we determined our way was better than the competition. Now you are considering a sale. Selling your business is a financial transaction whereby you yield control of your business to someone else, the buyer. Yikes. Yield control? Are you ready for that? Please consider the seriousness of the endeavor before proceeding. Even after careful consideration and analysis, outcomes are not guaranteed. With so much uncertainty, how do we know when the time is right? Is it this year, next year or five years from now?
Market Timing. In finance we are taught that it is impossible to time markets. If anyone figures out how they can consistently time the market correctly every time, they will eventually own everything. Is it as simple as buy low, sell high? What if we later find out that what seemed high today is low tomorrow? Then we will have missed a future opportunity. Financial markets are uncertain and even the best economists frequently get it wrong. Investments such as stocks, small business, and real estate valuations and pricing are affected by many factors including interest rates, supply and demand, regulatory environments, access to capital, etc. Even if all these indicators are positive, if consumer confidence is low, values on investments may suffer.
There is no way to accurately time markets so the best you can do is to, over time, build your business to receive the highest valuation in any market. How do you get the best return on your investment regardless of the market? Focus on the fundamentals you have some control over and will add value in any market. Small business valuations are enhanced by a good reputation in the community, strong revenue and profitability, consistent year-over-year growth, scalability, strong management teams and tenured staff. Today could be the best financial market we will see for some time, or it could be the worst. No one knows.
Crossing the Threshold. You don’t have to sell. It may seem like a good idea, and you may even have a number in mind that you will accept. But even if you get an offer for your number, there are a host of other legal and business decisions to be considered and challenges to overcome. Every circumstance is unique, and every entrepreneur has their own specific reason for wanting to sell. Most of the entrepreneurs I work with live and breathe their business so asking yourself what you will do after a sale is one of the most important questions you need answered. Do you want to exit quickly after a transition or maybe keep some ownership and stay on with the new owner to help build the business? Since selling is among many options, consider all possibilities. Your alternatives might include transitioning the business to family or employees, selling your shares to a partner, or keeping and growing the business until the time is right and you have crossed the threshold. By crossing the threshold, I mean you have considered all possible scenarios and you have determined that a sale is your very best option.
The best time to sell is when you have considered all other options and concluded that selling is the best course for you to take. Having seasoned advisors will help you know what to expect and provide advice on marketing and packaging the business. Good advisers will assist in negotiations and help structure the transaction, so you receive the best possible outcome. Once you have crossed the threshold and are ready to commit yourself to the process, then is the best time to sell your business.
Beth DaSilva is the President of Fleetridge Pacific and M&A Transaction Advisor with over 20 years of experience helping business owners sell their companies.