Lots of entrepreneurs assume that selling a business is simple. After all, if you have put your life and soul into it, someone else should surely see all that value? Sadly, nothing could be further from the truth. Selling your business is hard. Being prepared for the right time is essential.
Deciding when to sell a business is a highly personal and complex decision that depends on various factors, including your personal and financial goals, the business’s financial performance, market conditions, and future growth prospects. Not only does the timing have to be right for you, but it also must be right for the buyer.
Here are some factors to consider when deciding whether it is the right time to sell your business:
Personal and financial goals:
Your personal circumstances, such as retirement or a desire to pursue other interests, can play a significant role in the decision to sell. Planning for this should ideally start on day one but the next nest time is today. I hear a lot of business owners saying. “Oh, I’m miles away from retiring”, or “I don’t need to think about stepping back just yet”. None of that is relevant if you are serious about the value of your business. Protecting your business value and future income is critical.
More than 50 % of business owners will experience one of the 4 horsemen of the business apocalypse – death, disease, disability or divorce – that impacts their business. No one wants to think of their own mortality. And it’s not always you that is the victim of the dreaded 4 D’s – it might be a member of your family that takes you away from the business. The impact will be the same. Being prepare protects your business from the high probability of it falling into administration or insolvency if you are away from your business for more than a few weeks. It protects your income, keeps your staff in jobs, takes care of your customers and suppliers.
You might need to raise funds for personal reasons. Whether it’s selling the business or refinancing, preparation gives you options. And if you are incapacitated, planning makes it easier to get through the processes. Remember selling is NOT quick or easy. It’s taxing emotionally and mentally demanding. Preparation gives you choices and makes it easier when the timing is right – no matter what creates the opportunity.
If the business is performing well and generating consistent profits, it can be an attractive opportunity for buyers and may fetch a higher price. Equally when a business is on the rise, it takes cash for growth investment which you may not wish to invest. Your appetite to risk is as much a driver as the buyers’ approach to risks.
In businesses that have plateaued, there are often new markets to explore which take time, energy and cash. I have found a lot of business owners start thinking about selling when the business starts to dip. Often this is because of their own energy in the business falling. If your business needs you in the day to day, every day, it’s exhausting. Your energy becomes the business’ energy.
Reviving the performance of the business can result from readjusting your own position and approach in it. One of the most beneficial side effects of exit planning is how much easier it is to build a business that is worth more, even when you don’t want to grow it or when no growth is possible. No matter what stage your business is at, there will be buyers who look for specific characteristics – cash cows, growth opportunities, international or national expansion, parallel products.
While business performance is often affected by the wider market. Market conditions are one of the key elements to the right timing. Whether in a booming market or a recession, there are always buyers looking for the goldilocks acquisition – not too big, not too small, just right – for them. And it’s the same for funding , borrowing and investment. Some businesses are less affected by economic trends.
Most sectors have competition within the industry and from alternatives. Understanding your competitor’s performance gives insight into the market. Very few businesses spend any time or effort in benchmarking themselves against others. This can give great intelligence that translates into an easier business to sell at a higher price. Benchmarking reports are not easily acquired and if you haven’t benchmarked your business, maybe it’s time to explore this. Contact me if you’d like to explore this quickly and easily.
Buying and selling a business is like buying or selling a house. It’s all about finding the right buyer. Sophisticated buyers look at the return on their investment and make assumptions about the business on how they can make that return. When you can show there is demand for the business’s products or services, the next owners can see the risks associated with impact the decision to sell.
Future growth prospects:
If you believe that the business has limited future growth prospects, you may consider selling it while it is still performing well. Equally if you recognise that there are new opportunities that another owner can take advantage of it makes the value proposition easier to articulate. Looking at your business from the perspective of a buyer is a good place to start. You want to make it easy for the right buyer to make their decision and get the ball rolling for the acquisition process, especially if it’s the right time for you.
Buyers look at acquisition for 3 main reasons:
- Capacity (equipment, people)
- Capability (skills, unique intellectual property)
If your business has any of these in your industry sector or a parallel one that utilises the same skills, you may have a wider range of buyers, whether there are growth opportunities or not.
Consider consulting an appropriately experienced advisor or exit planning professional to help evaluate these factors and make a well-informed decision.
QUESTIONS FOR YOUR REFLECTION:
Personal and financial goals:
- What do you NEED for future financial security?
- What do you WANT for your future lifestyle?
- What’s your business worth right now (is it going to give you what you need or want in the future?)
- What does it need to be?
(Not sure how to get a business valuation? Contact me for a quick conversation and a valuation within 48 hours)
- Is your market expanding?
- How are your competitors doing?
- How do you know?
(NB Benchmarking is useful here – ask about how you can get more information about this)
Future growth prospects:
- What future value adding opportunities are there in your business?
- What will it take to take advantage of them?
- Do YOU need to do it?
Christine is an author, speaker and multi-award-winning Professional Business Mentors who helps business founders significantly change business outcomes and with it their quality of life. She saves them THOUSANDS and increases the value of their businesses by MILLIONS. Since 2000 she has generated £millions of crystalised value in business exits.
She is the published author of 4 critically acclaimed business books, including SELL IT (How to Sell Your Business for a Richer, Brighter Future), 5 Minute Finance and What’s Your Profit Score, which has been described as “the most useful business book of the year”, she is currently writing the next book.
Are you stuck in the day-to-day of your business with no time to plan for the future? A Professional Business Mentor is just the leverage you need to get out of the rut and flying. Discover how you can make your business worth more AND avoid leaving money on the table when you finally leave your business. Click here to contact Christine by email alternatively you can book a call with the Business Mentor of the Year 2020, author and speaker. Who helps business founders get their businesses exit ready so they can enjoy a happier, richer future. She saves them THOUSANDS and increases the value of their businesses by MILLIONS.