When to Sell a Business: Factors to Consider
Timing is everything, and that’s especially true when it comes to selling your business.
This article explains the factors that impact the timing of a business sale. Owners should consider if they have a viable business model and the industry conditions that affect the firm. You’ll learn why larger businesses are more difficult to sell, and how a business broker can guide you through the business sale process.
Is the business viable now?
Consider whether or not you have a viable business model now and d if you’re willing to continue to manage the business based on that model.
Assume, for example, that you sell products online using a direct to consumer (DTC) model. Your business is growing sales and profits, but the model requires a huge ongoing investment in technology. Are you willing to operate the DTC business and make large IT investments?
A successful retailer, on the other hand, may invest a large amount of time hiring and managing workers and dealing with high employee turnover.
Both types of businesses present challenges to an owner. You need to decide if you’re willing to accept the challenges, or if you’d prefer to sell the business.
The timing of a sale has a big impact on the sales proceeds that you receive.
Timing is everything!
To sell your business, you need to consider making improvements, gather documents, market your business, and negotiate with potential buyers. The process can take up to a year and will require time and working capital to operate.
You may have a particular date in mind for selling your business. The date may be based on reaching a particular sales goal, or when you reach a specific age.
Events often impact the timing of a sale:
- Motivated buyer: If a buyer has a strong interest in buying your company, and is willing to pay a premium, you may want to take advantage of the offer. Selling at an attractive price allows you to maximize the dollars you receive. If you wait and sell based on your personal timeline, you may not receive a more attractive offer.
- Industry changes: Changes in your industry may increase or decrease the interest in your business. If consumers are rapidly increasing their online purchases, retailers with a strong online presence are more valuable. As a result, online retailers may receive more purchase offers from interested buyers.
- Economic conditions: Buyers are more motivated to take risks and purchase businesses when the economy is growing. An economic downturn will reduce interest in business sales, and sellers will be at a disadvantage.
To sell your business for an attractive price, you may need to start the process sooner than you planned. If an event negatively impacts your particular business, the industry, or the economy, buyers may lose interest.
The size and complexity of your business is also a factor when considering a sale.
How does company size impact a sale?
Larger businesses are more difficult to sell. The due diligence process takes longer, and the buyer must put more money at risk. A larger company has more exposure to legal risks from employees, customers, vendors, and regulators.
Effectively managing a large business requires talented people. As your business grows, you need to find and develop qualified people, and cost may be substantial. A buyer must be able to justify the cost required to maintain a qualified management team.
The decision to sell your business may come down to personal considerations.
What does the owner want?
If an interested buyer contacts you, or you’re starting the process to sell your business, ask yourself these questions:
- Passion: Owners must be passionate about what they do. Growing a business requires a huge investment in time and effort, and you need a strong level of commitment to stay in the business. Are you still passionate, or do you need to make a change?
- Managing risk: As you grow your business, you’ll need more capital to purchase assets and to hire talented people. Larger businesses raise capital by issuing stock, borrowing large sums of money, or both. Are you willing to manage the expectations of stockholders and creditors as your firm grows? Some owners prefer to sell the business to someone who is more qualified.
- Financial sacrifice: Many owners take out a second mortgage or liquidate retirement plans to start a business. They give up the income and benefits available working for someone else, and they may not take a full salary for years. Does operating your business still require a financial sacrifice? Is selling your business and investing the proceeds a better option now?
An experienced business broker can help you make an informed decision about a business sale.
How a business broker can help?
Business brokers understand both the industry-specific and broad economic conditions that impact the timing of a sale. They can use their experience to help you make decisions as market conditions change.
Brokers can offer recommendations to help increase the value of the business, in order to maximize value. They use industry knowledge and marketing ability to find qualified buyers for the seller. A business broker understands the market and will educate buyers on why your business is attractive.
When you find an interested buyer, the broker will keep the due diligence process on track, answer questions, and increase the success of closing the deal.
Finally, a broker acts as a buffer between the buyer and seller and is not emotionally connected to the business. The broker ensures that the seller does not leave money on the table, and helps you obtain the maximum possible price for your business.
So, what’s your next step?
Why it is important to work with a trusted advisor?
At Raincatcher, we focus on the seller’s needs- not our own. We focus on providing the best advice about the market, industry, and whether the business is ready to sell.
Our objective is to educate the seller about their options. If it makes sense to work on the business, we will recommend affiliates that we partner with to help the owner maximize the value of their business.
We understand how hard our small business owners work to grow their company, and we do not take that lightly. Work with Raincatcher to make a more informed decision about a business sale, and to maximize the sale price received for your business.
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