As a business owner, it might hard to envision a period when you do not report to your company in the morning. However, there is a reality in the business world where, at times, the circumstances for you to sell your business will present themselves whether you are prepared or not. Have you ever found yourself in that situation and asked yourself ‘what would be the most profitable time to sell my business?’ This feature is dedicated to helping you understand the personal, business and industry considerations that you need to factor in to determine the right time to say ‘I can now sell my business.’
What factors should I consider when deciding the right time to sell my business?
If I were a business owner with an eye on a premium selling price or a fast sale, these would be the questions I ask myself before putting my business up for sale:
How is my business performing?
Business performance can be described in one of two ways: profitable or non-profitable. Profitable businesses are those with good bottom lines. However, these are not the terms buyers are usually looking for when buying businesses. As a buyer, I would want to know whether your business will still be making money years down the line. Profitability is an attractive quality in a business, but it pales in comparison to growth potential where buyers are concerned.
When you have a business that is set to launch a new product, penetrate a new market or open up new opportunities for employment and reinvestment, your business will command a higher selling price. If your goal for the sale is profitability, on-the-cusp performance is the best time to sell your business.
Companies with plateauing or declining performance are not as interesting to buyers. Business owners interested in selling at a premium should hold off the sale if their companies are at these two stages. However, if you do not mind selling your business for cents on the dollar due to other financial and non-financial reasons, you can always go with this option.
Am I struggling to operate it?
Did you know that depression is one of the most common disorders faced by entrepreneurs? Putting myself in the shoes of the owner of an enterprise, I would sell my business the moment I realized that running my business was putting a strain on my physical and psychological health.
Businesspeople should also be ready to part with their companies when they realize that their skillset is becoming irrelevant to the business. When you can no longer make a meaningful contribution to your company, it is a sign that the latter is in need of new management. You can choose to bring in someone to rejuvenate the business, or take the other way out and sell it.
Finally, the minute you feel burnt out because of the operation of your business presents a good window for you to sell your business. You cannot dedicate your time and energy to maximizing the performance of your business if you do not care for it.
How orderly is my business?
Are your tax returns current and well done? Is the state of your financial documents one you are proud of presenting to a potential buyer or investor? Do you have a business valuation outlining the worth of your business and the reasons for that particular valuation? Order in business documents is crucial because it facilitates the transfer of ownership from the target company to the buyer. Therefore, the right time to sell your business is when your answer to each of the questions above is yes.
Do I have an exit strategy?
I cannot say that I want to sell my business if I do not have an exit strategy in place. For most people, the exit strategy goes as far as identifying potential buyers, hearing out their offers, getting a valuation of their businesses and accepting an offer. However, sometimes this process is not as simple, particularly if you are a sole proprietor. Transfer of ownership is more critical and complicated with a sole proprietorship than with a company especially due to the profound effect of goodwill on the sale.
An entrepreneur whose popularity with the community boosts business will have a harder time transferring ownership to a new seller. If you want to sell your business, ensure that your goodwill is tied to your employees and not you. That way, there is continuity in the business even if a change occurs in the management.
What are my plans after selling my business?
No matter the circumstances under which a proprietor sells his business, the one variable that remains constant is that the business owner has to be ready to part with the company for a sale to be successful. Having post-sale plans goes a long way with making the sales process more amenable.
For most business people, retirement is what follows the sale of a company. I sell my business and enjoy the returns from that long-term investment. However, some choose to take non-conventional routes after selling their business. For example, numerous business owners sell their companies when a lucrative opportunity comes along and use the proceeds to start other companies. Others build entire careers on imparting their expertise in running their companies to newer entrepreneurs who are eager to learn. Some even act as consultants in their given fields.
You know the timing for the sale of your enterprise is appropriate when you are prepared for life after the sale of the business.
As you can see, there are numerous factors that contribute to the decision to sell a company. Some are financial, such as the desire to make a profit. A software company with a generous offer from Facebook could hardly turn down the offer. Non-fiscal-related issues such as personal motivation also play a large role in whether the time is right for a business owner to sell his company. You take all these factors into consideration before making the decision to sell or not to sell.
Mathieu Paul
Director – Business Improvement
P: +618 6315 2755
E: enquiries@wabusinessvaluations.com.au
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
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