When is the best time to sell your business? Don’t Miss the Window.
The Right Time To Sell Your Business
To achieve really perfect timing, the best time to sell is when you are mentally prepared, and your company has had three great years in a row. In addition, perfect timing would include ideal external conditions where interest rates are low, financing is readily available, capital gains taxes are low, and the national economy is humming. However, these external factors are unpredictable and uncontrollable. Conditions for selling are great right now.
You should have a plan for the sale of your business, even if you’re not sure you’re going to sell. You never know when circumstances might force you to sell or if some personal situation may require you to sell.
The economic climate is unpredictable
With the unpredictable economic climate we have today, you can't plan on basing your decision on ideal external conditions. In addition, it's hard to recognize peak conditions. If that were possible there would be a lot more people buying low and selling high in the stock market. The timing of your decision should be based on personal considerations and controllable factors within your company.
Small Business Valuations Drop Faster Than They Recover
Much like the stock market, small business valuations are dynamic. The same thing that happens on the stock market – a rapid drop in value - can happen to small businesses in an economic downturn. If your profitability drops considerably due to the market or competitive conditions, your business valuation immediately drops as well. If you are coming off a down year, it could take three years of increasing profitability to eliminate that poor year from inclusion in your business valuation. That's why it is best to consider selling when you have achieved three consecutive years of successful results.
Bad Timing - Waiting Too Long to Sell a Business
One of the most common obstacles to the successful sale of a business occurs when an owner waits too long to sell.
As was mentioned at the beginning of this article, the best time to sell is when you are mentally prepared to sell, and the company is coming off three great years, along with other positive external conditions. Though that shouldn’t stop you from selling at other times if it feels right to you and your broker.
The most common timing mistake business owners make is trying to hold on and turn around declining results when they don't really have the enthusiasm or mental drive to make it happen. The turn-around effort can be stressful and lead to health problems that might further detrimentally affect the business value. It can lead to a non-reversible downward spiral that ultimately results in a business that cannot be sold. This happens often. While it is hard to predict the future economic climate, it is easy to see a downward trend in your operating results. Unless you are sure you have the drive to turn things around, it may be best to sell your business before the value declines further.
So, when should you sell? That’s a decision only you can make. You need to identify the obstacles to a successful sale and address/mitigate them.Doing so enables you to be confident of a successful sale when you determine the personal timing is right for you.