If you are like many business owners, you will spend years or decades building your business, giving little thought along the way as to when you should sell it. Eventually, the moment comes when you start thinking more about it, but you’re still not sure if the time is right. The decision to sell your small business is very personal, but it is also influenced by several factors.
Are You Ready to Sell?
You might consider all of the practical issues of selling your business, but until you explore your own readiness financially and emotionally you could come to regret your decision. Financially speaking, you might look at the sale of your business as the answer to your retirement security. You still need to do some financial planning to determine the most tax-efficient way to take money from the business or to calculate the spend-down rate of your capital to ensure that your income can sustain your lifestyle. The more critical issue to consider is your emotional attachment to the business. Selling a business without pondering what to do next can sometimes lead to a deep sense of remorse. Having a life plan or exit strategy in place can provide the assurance that you have options.
Is Your Business Saleable?
If you are assessing the saleability of your business, you need to look at it from the vantage point of a potential buyer, not through your own rose-colored lenses. Ask yourself, “Would I buy this business?” Your focus should then turn to eliminating the negatives while accentuating or enhancing the positives in five areas where a prospective buyer is bound to look:
- Profitability: The trend is what’s important.
- Solvency: The less debt, the better.
- Market position: is your business a leader?
- Management/employees: Do they add to the value?
- Customers: Size, diversity, loyalty, and growth potential.
By viewing your business through the eyes of a buyer and understanding what factors buyers consider in determining a price they will pay, you can concentrate your efforts in on improving those aspects of your business that have the most immediate and visible impact on its value.
When is the Best Time to Sell?
The best time to sell a business is at the peak of a market, but you can’t always control that. At any particular time, your business might be doing well, but other factors in the market or the economy could negatively impact the value of your business. If your exit strategy is more flexible, you may be able to wait through a market cycle, but there is no assurance that the environment will be much improved at the other end. When you start thinking about selling your business, they only thing you can do is focus on those things you can control and put your energy and resources into managing your business as if you had no plans to sell it. Eventually, the time will be right.