One of the frequently asked questions I receive as an advisor from owners is when is the best time to sell the business. Although there is no perfect time to sell a company, there are times that are more favorable than others. The value of your enterprise can be significantly increased by choosing the most advantageous moment. Here are three considerations to keep in mind when finding the perfect timing.
The first and primary consideration in maximizing value is the condition of the business itself. How has the financial performance been over the past five years, compared year over year and to competitors or industry standards? Sellers will benefit from showing a positive trend in both revenue and/or profitability, and are penalized if they don’t. As the owner, you should be ready to explain any negative key performance indicators and map out a detailed plan for a positive trajectory in the future.
Other related elements of consideration when looking to maximize the value of a company include details such as the state of the company’s assets and attributes. This can include equipment and facility maintenance, but also less quantifiable elements such as the business’ core technology, product/service offering, brand name, reputation, and market share. What about client turnover and staff retention rates? Any negative perceptions about the organization that may or may not be true will need to be addressed by the seller in order to receive top dollar.
A second key area of consideration when timing the sale of a business are the market conditions. This can include competitor performance, industry trends, new emerging and/or disruptive technologies, expected changes in legislation or regulations. The acquisition process will be affected by the economy, both locally and globally, and interest rates. Recent transaction activity also provides a strong indicator of market conditions. By looking at recent trends in M& deals (done in the same and similar industries), you can get an idea of the current appetite for the business and if the valuation methods are favorable.
The third element to keep in mind, and of equal importance in the timing of the sale, is the owner’s goals, needs and stage of life. For example, as an owner nears or reaches the age of retirement or simply no longer is as inspired by the day to day challenges of business operations as they once were, they often will look to sell all or a portion of the business. Heath considerations, financial needs and family obligations are another example of elements that are key in terms of timing. The timing of a sale can be triggered by a variety of personal reasons.
In short, there is no perfect timing however by keeping these three key areas in mind, you can significantly improve the odds of coordinating an exit at maximum value. As the old adage says: timing is everything. By recognizing the internal and external cues you can significantly improve your chances of a superior return and future success when you sell your business.
If you are an owner looking to time the sale of your company, call us. We are experts at working with entrepreneurs as they buy, build and sell their business.