The Right Time to Sell Your Business
The last issue (#42), Questionnaire – Is it Time to Consider Selling Your Business?, provided a list of introspective questions for your consideration. This issue will discuss The Right Time to Sell Your Business.
"Opportunity dances with those who are already on the dance floor." H. Jackson Brown Jr.
The Right Time to Sell Your Business
Only you can determine the right time to sell your business.
Perfect timing
To achieve perfect timing, the best time to sell is when you are mentally prepared and the 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. Those external conditions existed in the fall of 2007, but if you are reading this newsletter, you probably missed it! Who knows when the external conditions will again be so favorable, if ever? That is totally unpredictable. Economists’ prediction success rates are not much higher than weather forecasters because there are so many unpredictable variables (such as political instability, unknown tax implications, U.S. and European debt, international terrorism,Middle Easttensions, etc.). Many threats can upset the apple cart.
Small business valuations drop faster than they recover
Much like the stock market, small business valuations are dynamic. The stock of General Electric (GE) dropped 58% from 10/31/07 to 10/31/08! The same thing can happen to small businesses in an economic downturn. If your profitability drops considerably due to an economic downturn, your business valuation immediately drops as well. It’s an unfortunate fact that small businesses are valued based on their most recent results (if profitability is down), but usually on an average of about three years if profits are consistently rising. In other words, if you are coming off a down year, it will take three years of increasing profitability to eliminate that poor year from inclusion in the valuation. That’s why it is best to consider selling when you have achieved three consecutive years of successful results. In today’s world, the macro-economic climate can quickly detrimentally affect your business value, just as it hammered GE’s stock price in 2008. One of the most common obstacles to the successful sale of a business comes from owners who wait too long to sell. To learn more read Issue #87 – Bad Timing – Waiting too Long to Sell.
The economic climate is unpredictable
With such an unpredictable economic climate, you can’t plan on basing your decision on the ideal macro-economic climate. It may never arise again. 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 your personal considerations and controllable factors within your company.
You must plan for the sale of your business
The key is planning for the sale of your business in advance so when the timing is right from a personal standpoint, you are adequately prepared and the valuation has been maximized (regardless of the economic climate). Because there are many reasons that may force an unplanned sale of your business, it always best to be prepared. For more information, read Issue #41 – 35 Reasons Owners Sell Their Business).
To learn more about the business exit planning process, read Issue #47 – A 20-Step Business Exit Planning Process. To learn more about preparing your business for sale and maximizing its value, read Issue # 31 – Preparing to Sell Your Business – 8 Steps to Increase Value.
The ideal time to sell
The ideal time to sell is …..
