When is the Right Time to Sell my Business?
Timing is key when it comes to selling a business.
In our 24 years of assisting business owners in their exit plan strategies, one of the most commonly asked questions we receive is, when is the right time to sell? From a business owner’s standpoint, this could be tricky to predict. Is it when you are nearing retirement age? Or is it when you have found a good person to step into your shoes? While these are important factors to consider when getting ready to sell, the most important component to selling your business is its current financial state. In other words, you want to sell your business when it is doing well. Through most of our interactions with business owners, we have learned that this concept feels counter-intuitive. If your business is doing great and on an incline, you may think that if you wait a little longer, you can get even more for your business when it starts to really take off. Unfortunately, that thinking has landed many of sellers we know in a very regrettable place.
We cannot tell you how many times we have valued a business at a desirable price but due to a recent influx in business, the owner decided to hold off on selling. A year or two later, the business owner feels ready to sell only to find out their business is worth less than it was before. What happened? There are several elements that go into a successful business and the absence of one could ultimately lead to its unraveling. Oftentimes, these business owners were struck by an unforeseen circumstance such as the loss of a key customer, a change in their health or an unexpected downturn in the economy. As a previous owner of 4 businesses myself, I understand the heartache of this situation and how frustrating it can be after so many years of hard work. When you decide to get your business valued, this is good knowledge to have so that you can make the right decision at the best time for you and your business.
The way we value a business also dictates the best time for an owner to sell. One of the requirements for a cumulative valuation is 3 year’s tax returns and financial statements. Once we begin reviewing the financials, we place the most value on the current year’s financials, then secondary value on last year’s and finally, the least value on the oldest year. If the current year has the highest profits, revenue and cash flow, the sales price will be exponentially higher than if the previous years showed the most financial growth. Not only will this help you determine sales price, but will also assure the potential buyer that your business is stable and will most likely continue trending upwards. As I have told many sellers; we do not know what the future holds so we must focus on what we do know, and financials are concrete evidence of where your business is going.
If you are thinking about selling your business and want to find out how much it is worth, we can tell you. We offer confidential, no-cost, no-obligation valuations to business owners and we can help plan for your future. 2019 was our best year yet and our network of qualified buyers is larger than ever, SBA backed loans are being granted more frequently and with lower interest rates than we have ever seen. 2020 may be the right time for you to take the next step in your business and it all starts with a valuation. Do not be caught wishing you had acted sooner this time next year.
For more tips on preparing to sell, stay tuned for our blog next week outlining tips on how to prepare your business for sale.
-Greg White, Senior Advisor at Viking Mergers & Acquisitions