As we mentioned in our previous article When to sell your business is a frequent question we get asked as business brokers. In this article we are going to share with you some of our best business tips regarding the timing of a business sale that will help you plan your exit strategy and make sure you achieve the best outcome.
Business Tip #1 to help you consider timing: We suggest keeping an eye on the general overall market and pick when the market seems buoyant for business sales. Look at what the really big players are doing are there big business sales and deals occurring such as mergers and acquisitions being reported in the financial press? Are there lots of new IPO's (new companies being listed on the stock exchange), or are Private Equity firms making big or lots of acquisitions? We have noticed that the big business sales can give you a reasonable indicator of the market and buyer activity even if you are selling a small business as it all has a knock on effect.
Business Tip #2: Exit Strategy and Your Instincts Knowing when to sell your business can often come down to gut instinct. If you feel it is time to get out on a gut level then it is probably wise to pay attention to that gut feeling or instinct and start the process of selling your business.
Business Tip #3: Your Personal Goals In the end timing will often come back to either your life goals and/or your personal situation. If part of your goals were to retire at age 60 and you are now 59 then the time is right to start selling up and implementing your exit strategy. Sometimes your personal situation may force you to sell your business e.g. health reasons, partnership breakup etc or a competitor may come knocking wanting to buy you out for a top price – Side-note: More good reasons to make sure your business is always prepared for sale!
Business Tip #4: Define the selling parameters You will need to determine your selling requirements just the same as a buyer needs a buying a business checklist. Just like a buyer, you will need to create an organised plan as part of your exit strategy. Remember that you as a business seller will be asked to answer lots of questions by not only your buyers but your intermediaries such as business brokers as well. You need to be ready for both. You need to understand the business sale from your buyers point of view so we suggest as part of your preparation for the sale you understand the sorts of questions they will ask. If you want help with this in our How To Buy And Sell A Business e-mentoring program we have included detailed lessons on a typical buying a business checklist that you need to understand.
Business Tip #5: The year leading up to your Business Sale Don't go spending your valuable cash on new capital equipment, fixtures and buildings etc leading up to your business sale. You will rarely get it back through the sale. If you must purchase new equipment for the business and you know you are going to sell your business in the next 12 months, it is far better to lease it. We see many business owners make this simple mistake and realise it too late.
A Case Study to illustrate what we mean: A client of ours spent over $100,000 on a new piece of industrial equipment (printing and packing machine) in the year that his business was to be sold. This $100,000 piece of capital equipment went straight to his balance sheet. The buyers did not care what the actual value of the equipment was as they were only interested in paying a sale price based on a multiplier of the net profit. Whilst our client viewed the equipment as highly valuable, the buyers really didn't care whether it was worth $200,000, $100,000 or $20,000. They were only interested in the net profit of the business and their offer was simply x4 of this amount. It didn't matter what the equipment was worth. After the sale, my client realised that he had just effectively spent (and thrown away) a needless $100,000. If he had just leased the equipment the new owners would have been just as happy taking over the lease, thus my client would not have had to outlay $100,000 of his own cash.
Business Tip #5: The Final Consideration on Timing Your Business Sale… Are you willing to devote the time needed for your business sale? Many business owners do not consider the effects of the sale process on their business time-wise. A business sale does not happen within a few days or generally even a few months. Remember, this is a process that will take time and energy on your behalf. Make sure when considering the timing of your business sale that you have the time and energy to devote to the sale as it can take up considerable amounts of both depending on the deal. Following these business tips will help you in planning your exit strategy and in deciding when to sell your business. As business brokers we take our clients through each of these ideas in planning their business sale so that they are well prepared and get the timing right for their business sale, and most importantly they are realistic about the sale process.