This article was originally posted on the 19th of June 2017.
The right time to sell your business is a question that plays on the mind of many business owners. It’s also a question we are frequently asked and one which we can’t give a definitive answer to. There are just too many variables. But by contemplating these variables, even a little, it can help guide your answer.
What are the common reasons to sell?
By starting with this question, you will see that a business sale can be planned or it can be reactive. That makes a big difference to when you sell and what offers you might receive.
Common reasons to sell include;
- Retirement – easy to plan ahead for.
- Fallen out of love with the business – you may not get the same buzz you once did, but you can still plan your sale.
- Ill health or accident – not time to plan and totally reactive. Often speed of completion is traded off against sale price as a result.
- The business has outgrown your capabilities – you are now holding the growth of the business back. You need a more experienced or larger owner to take it to the next level. Buyers will be attracted to this, but only for a certain period. Once profitability levels off and begins to stagnate, they will be less interested, so timing is still key.
- Opportunity knocks – you’ve been presented with an opportunity that you really don’t want to turn down. Could be overseas position or something in a new sector. A price v’s speed compromise may be necessary to release you in time.
- Concerns about the market direction – if you manufacture break pads for cars, will there still be a market with electric vehicle sales rising? What value is there is coal mining when the world is becoming fossil free. If you are recognising these market changes, so will your potential buyers and the earlier you sell the better chance you have to achieve a good value.
- Planned exit – the owners had a plan to sell all along once the business reached a certain size or position. Perfect. This is everything we advocate in our work.
Put simply, if you are selling with a plan and strategy behind you you have more choice and options than if you don’t.
Start with the sale date
We talk a lot about planning in our articles. Planning your business sale so you can present it to market in the best shape possible. This planning also comes to the fore in knowing when to sell.
So, if you have a plan to sell your business at the age of 60, that’s the date you start with and we work backwards from there.
How long does it usually take to sell?
Business sales are a tricky thing. It’s like dating. There may be many single people out there looking for love, but there may only be one person for you.
And people are picky. They reject dates because a person looks a certain way, they have no common interests, they live too far apart, age gap…..
You may have a well prepared business which shows consistent growth and profitability, but finding a suitable buyer is like dating. It may take weeks or it may take months.
The contractual process of completing on a sale once an offer is agreed is pretty standard. For most businesses its around 12 weeks or so. What takes time is finding the interested parties and moving them to the point of making an acceptable offer.
We’ve done this in just a few weeks on some businesses and for others it has literally taken years.
What helps are all the aspects of exit strategy planning. If your business is more attractive than the next, you attract more interest in your sale. The odds are then in your favour that one of those parties will be the right buyer for your business.
So, working back from the date you want to sell your business, you need to deduct 12 weeks for contractual work. You need to consider that you are likely to provide a handover or maybe continue working for the new owners. Then build in the time to find your buyer and I would suggest allowing at least 1 year for this. So, already you are looking at advertising your business at least 1-2 years before you hope to walk away.
Mathematically, if you want to be work free at age 60, you need to start advertising at age 58. If you’ve not been proactive in how you run your business to that point, you will also need a couple of years to prepare for the sale.
Being work free at age 60 suddenly moved backwards to age 55 when your sale journey should begin in earnest.
If a sale happens for you overnight, think of it as a bonus opportunity, but do expect this to take time.
Should you / can you build business value?
Your business is your business until the signatures are on the contract and the cash in the bank. Sadly, some business owners feel that once they make the decision to sell, they should change nothing.
We cannot stress how important it is that you continue running your business the way you always have done. It is your success that the buyer is purchasing. Don’t change the formula.
If you can continue to build value your business during a sale process, the offers you receive will reflect this. This is especially so if your financial record keeping is robust and can prove the increased value through regular management accounts.
Given the possibility that it could take some time to sell, remember you will be benefitting from the increased profitability in the mean time too. Win:win.
How old are you?
Are you still fit and healthy to work?
What? Age is just a number, isn’t it?
The reality for many people is that they develop more health issues with age. Some of those can be debilitating and make it impossible to continue working. As we saw at the start, health and accidents are one of the biggest reasons for business sales.
If you are an integral part of your business success and this happens, you have a problem. Be honest and ask yourself if you are still an asset to your business, and at what age will that cease to be.
So age does become a factor when deciding when the perfect time is for you to sell your business, but it doesn’t stop you working.
We once sold a 2nd generation business. Son had inherited the business on his fathers death decades before but now wanted to retire himself. One condition of sale (which the buyer was very happy to accept) the continued employment our client’s 85 year old mother. She was still an asset to the business, knew every customer by name, kept the ‘boys in the yard’ in line but did cut her hours down to 3 days per week. Age is just a number so long as you are still an asset to the business.
If you have become a liability that holds things back, you need to get out, but you can choose how.
You may choose to exit slowly over time, especially if selling through an MBO or handing down to family members. These can help you relinquish ownership whilst maintaining a paid or unpaid role in the business. Our infographic outlines some choices.
What is the market situation?
You may find it odd that we are only now considering the wider market. These previous factors are most definitely within your control. Market conditions are not.
The media will report the housing market in a boom where sellers have command, or with property prices are falling which favours buyers. The status quo doesn’t make for an interesting story.
If you want to buy a business, the market seems to always be against you, if you want to sell, it’s never the right time – or so it feels.
The best thing you can do is watch the market yourself. Specifically, which businesses in your sector are up for sale, have recently changed hands, which have folded and which are growing. These aspects reflect the appetite in the market for the products and services you and your competitors offer. A buoyant market attracts business buyers to the sector.
If you want to know what prices businesses have sold for (not what they advertise for), you will need the services of a business broker. They will have their own previous sale data and may have access wider information too.
The best way to beat the markets is to have built a strong business that rises above them. If you’ve built value in your business and planned when you want to exit, and how, it gives you control outside market conditions. Strong businesses will sell in any market.
Should I accept an unsolicited approach?
In the perfect scenario, you would create a business, see it grow and then someone will approach you one day with a large sack of cash offering to buy it. These big named deals hit the headlines for exactly this reason.
If you’re the 3 student friends who founded Innocent Smoothies in 1998/9 you may not have believed that CocaCola could be investing in you a decade later. Or that when you created the video sharing platform that is YouTube, Google would be handing over $1.65bn within a year to own it.
No doubt an unsolicited approach like this will come out of the blue and at a time when you may not be considering selling. That’s no reason to dismiss it without review.
Look at the company behind the offer, examine the deal they are putting forward and then relate it back to you, the shareholders.
- Does it pay you the figure you want to be able to walk away. Talk to your wealth manager or IFA and analyse what the sale proceeds will enable you to do. It may not be billions of dollars, but it may make you mortgage and debt free, see your kids though university and put deposits on a holiday home. What will the sale enable you to change about your life?
- Can you retire comfortably on the proceeds or set up a new enterprise?
- Have you considered what you’ll do with your time if you’re no longer working? Many business owners struggle with the lack of focus after a sale because they’ve not considered what will occupy them.
- What do your closest family and advisors think about the prospect of a sale? Take professional advice, but also get advice from the people who care about you whatever your decision.
As the saying goes, “a bird in hand is worth 2 in the bush”.
In other words, the offer you have in front of you may not be perfect and it may not be perfect timing, but the perfect offer you seek, may never materialise.
If the offer presented to you comes close to your ideal, provides for your standard of living and is a fair reflection of value for the business, you perhaps shouldn’t turn it away.
If the offer presented is a million miles from this, decline but ask yourself,
“What did the buyer see or not see in my business that made them pitch that price and deal”
These are the things you can focus on changing and improving to get to the sale you want. If you need help doing that, get in touch.