The best time to sell your business
It has to be one of the most frequently asked questions that the team at wesellanycompany.com are asked:
“How do I know if it is the right time to sell my business?”
Alongside:
“How do I know how much my business is worth?”
The quick answer to the last question is:
Your business is worth as much as someone is willing to pay for it, and we have a blog that tackles that very question right here, alongside some very useful information about how to sell your business without a business broker. But it is the former consideration we are looking at today, that of how to judge the right time to sell your business.
By the end of this post, you will be so well informed that you will be able to impress your friends and colleagues with your newly acquired, in-depth knowledge. Or at the very least you will have an action plan that will enable you to get the best price for your business and in the fastest possible time.
Is it the right time to put your business up for sale?
There are so many factors that influence whether or not your business will generate the right interest from the right buyers in the right timescale and at the right price. These can be condensed into three main areas:
Your business is ready to be sold:
- When the market is ready
- When you are ready
- When your business is ready
Which of the above do you think is the first and primary consideration?
If you answered that the business can be sold when you are ready to sell it then… it’s important, but sadly not the most important. Potential buyers are not buying you they are purchasing your company. Therefore the most important consideration is:
When your business is ready to be sold!
This begs the question:
How do you know when the business is ready to be sold?
We’ve mentioned in previous posts that when running a business you should always run it as though your intention is to sell it and for rather a high comparative price. Hopefully, this section will help explain why.
Historically (ideally five plus years) your business will have performed well and demonstrated a reasonable growth rate. The results of this will be evident in your gross profit margins over time and your client acquisition/sales growth.
A buyer will need to see that the processes you have in place consistently deliver positive results.
Do take into account here that if a buyer is considering purchasing your company, yours will NOT be the only business they look at. It is reasonable therefore to assume they have done their homework and they ALREADY know what figures and statistics will be deemed as positive and worthy of investment.
Ask yourself the following question, and then give an honest answer:
Why is it worth a buyer’s investment to purchase your company over them buying from someone else, or simply starting their own company from scratch that performs the same service?
Buyers and investors are taking a risk when they purchase a company. It is for this reason the reward element has to outweigh that of potential risk and disaster. This is why due diligence before any business purchase is highly recommended. Due diligence is a topic covered in a previous post, which you can access here.
Future prospects for your business for sale
It’s all very well – and essential – for a potential investor to see how well your business has performed to date but this is not the main consideration that you have to address.
Imagine if you will that you are transported back to the late 1980s and you are offered the opportunity to purchase a company that is the market leader in the production of fax machines.
Through the much-envied power of hindsight, we know that any company that did not follow market trends and start replacing fax with email did die due to a dramatic lack of demand.
Turning this back to your business, the most important element you need to demonstrate is in many ways unquantifiable, or at best an educated prediction based on past performance, brand image and FUTURE PROSPECTS.
How do you demonstrate the future value of your business?
To demonstrate future prospects for your business you must plan for the future.
We have said it so many times that it is in serious danger of becoming an adage:
“Run your business as though it is your intention to sell”
If you want your business to grow then you MUST look into the future and have a clear idea of where you want the business to go, how big you want it to grow and how much money you want to generate.
What are the growth plans for your business?
Now, before you say:
“I plan to make a zillion pounds in the next five years.”
Remember, future cash projections must be realistic and plausible to any potential buyer. Assuming your potential buyer is as intelligent as they are wealthy then they will look at your revenue growth rate to date and the projected consistency.
Not all businesses operate in a fast-growth industry, again the chances are your potential buyer will have done their homework and will be aware of your sector’s market conditions. In this case, bear in mind that a business with a strong marketing and sales record can perform well even in a slow-growth industry.
It is such businesses that will attract the best price from a potential investor.
How effective is your business management team?
If your future business plans and projections are based on a dysfunctional management team, or you are running all the business operations on your own then this can present quite an obstacle for any potential investor in giving you the price you want.
This brings us to our next point:
“A business valuation is only worth as much as the team and processes required to make it a reality.”
Me – 2022
Sometimes your existing team will be part of the business sale, and the new owner will purchase the business and continue to run it with them in place. As a business owner, you too may be part of the business sale and an exit strategy can be put in place so the business can eventually and effectively run without you.
It is always a good idea however to run your business in such a way as it can operate quite nicely without you. The more you are trapped in the dense foliage of the day-to-day operations of your business then the less able you are to have the time and a clear enough vision to control the direction and growth of your company.
I hope you have found this blog post helpful. Part two will follow very soon. If you would like help or advice in buying or selling a business, then click here and one of my team will be in touch.