When’s the right time to sell your business?
If you sell at the wrong time, you could be leaving a ton of money on the table.
That money could help you achieve your future goals - securing your retirement, taking trips with your family, or getting that boat you always wanted.
From our 20+ years of selling businesses, we can confidently say that you will never know when the right time to sell is, which is why preparing ahead of time is key.
To help you understand how to time the sale of your business, we will cover the financial, personal, and environmental factors that can impact when you should sell your company.
Let’s get started.
1. How Your Company is Doing Financially
To get the best price for your business, you will want to sell when it is doing well financially. When you are on a positive growth trend of Seller Discretionary Earnings, it’s easier for potential buyers, and the SBA (Small Business Administration) lenders, to feel confident in lending on your business.
Selling businesses with negative earnings growth is difficult, especially through the SBA 7(a) program. For the highest chance of success, sell when your company has three years of consistent, positive financials.
To give you an example of what that would look like, we will compare two companies. Company A has hovered around $1 million in SDE for the past three years, whereas Company B went from $500,000 to $800,000 to $1 million in the past three years.
2019 - $1 million in SDE
2020 - $1 million in SDE
2021 - $1 million in SDE
2019 - $500,000 in SDE
2020 - $800,000 in SDE
2021 - $1 million in SDE
You will be in a better position to sell if you have consistent, stable revenue and earnings growth like Company A.
In addition to consistent financials, you should consider your business’s life cycle. Each business will experience stages of growth, maturity, and decline.
The best time to sell is likely during your company’s “maturity” stage, after you’ve achieved considerable growth and before the company declines.
However, no matter how well your company is performing, you always need to be ready to sell.
2. How Ready You Are to Sell Your Business?
There are a lot of emotions attached to selling your business. Just because you know that you should sell when it is performing well, doesn’t mean you’re prepared to do so emotionally.
The best way to get over this hurdle is to prepare for the possibility of selling in the future. By speaking with a broker ahead of time, you can figure out the value of your business and learn what you need to know before selling.
Some things can come up before you have decided you’re ready to sell:
- Health issues
- Partnership disputes
You never know when a health concern will come up - preparing to exit the company through a sale is the best way to deal with a sudden health issue. If you have already laid out your exit plan, it makes it easier for you to get the best deal and terms for your business.
3. How Your Company is Doing in the Current Environment
Some business owners experienced more success than they ever had in the midst of the COVID-19 pandemic, while others experienced a large decline in business.
It can be hard to predict things like financial crises, natural disasters, and pandemics. However, you can minimize the toll they take on your business by preparing ahead and selling at the right time.
You can prepare your business for environmental factors by:
- Keeping an eye on industry patterns
- Diversifying your services
- Focusing on recurring revenue
By keeping your finger on the pulse and having contingency plans for when crises do occur, you can make sure your business stays in one piece. If your business is negatively impacted by environmental issues, don’t sell during that time - keep it running and profitable (if possible).
Ultimately, the environment will have a big impact on when you sell your business. Not only do you need to prepare for environmental changes, but you also need to sell when the environment is not negatively impacting your business.
By timing your sale with an economic climb or a positive industry change, you can maximize the profit you receive from selling your business.
Consult With Your Deal Team
Determining the correct time to sell your business is difficult, which is why a deal team can be helpful. If you have a deal team, they are the first ones you should turn to when trying to decide when to sell.
A deal team can help you in multiple ways:
- A broker will be able to give you an idea of what your company could sell for by providing a valuation.
- A CPA or financial advisor can run you through financial scenarios based on the valuation.
- An attorney will be able to help you resolve any pending litigation and ensure your legal bases are covered.
Your merger and acquisition advisor will also be able to provide you with insights into what they are seeing in the market to help you determine if right now is a good time to sell, but they should not push you to sell unless you are ready to.
To get the most value and insight, you should find a broker who has sold businesses in your industry before since they will know the patterns of your specific market.
Sell Your Business at The Right Time For You
Now that you know how financial, personal, and environmental factors can impact when you should sell, talk to those close to you and your deal team and decide what factors are most relevant and important to you.
Learn about how you can prepare for your eventual sale by reading our article “Top 10 Ways to Prepare Your Business to Sell.”
We know that deciding when to sell your business can be a difficult decision. Reach out to us today to discuss when you should sell your company.