Messages about selling your business range from accurate and helpful to laughable and dangerous. Many advisors promise “top dollar.” The idea that someone can do this for you, however, is misleading. The future of the business depends on many choices you make. One of them is when you sell. These three principles can help you pick the right time:
Sell on the Upswing
The best time to sell is when you’re least likely to want to sell. After all, who wants to walk away when profits are skyrocketing. Many owners want to sell only when the business is struggling. Some believe they can explain away bad numbers. But buyers are smart. They will only pay what your business is worth today—so don’t wait until that value plummets.
Athletes want to peak in time for a competition—not before, and certainly not after. The same should be true for people selling a business. If you want big money, you need to sell when your business peaks.
Sell During Favorable Market Conditions
The window of opportunity for a business sale slammed shut during the Great Recession. Business owners had to delay their plans for years. The market is better now, but it can change at any time. Smart owners sell when market conditions are favorable. But don’t get lulled into a false sense of security, believing that the market will continue getting better and better. The market inevitably shifts.
Sell Only When You’re Ready
You put time and effort into building your business. You need to do the same before you sell. Exit readiness has two components: emotional and financial.
Owners often neglect plans for their retirement, putting all of their funds back into the business. This makes them less liquid, and also means that a high sales price is absolutely necessary for retirement. If your business is more than 50% of your net worth, you’re not ready to sell.
Emotional readiness matters, too. It’s hard to sell something you’ve committed so much of your life and identity to. One way to measure your emotional readiness is to consider how much thought you’ve put into your post-sale life. Owners who are ready are typically moving toward something—more time with family, volunteer work, travel, or a new business venture. When you’re only seeking to move away from something, that could spell trouble.
Selling a business can be gut-wrenching. If you’re not ready, then you need to delay the process until you are. A sale demands a team of talented people. Whether or not you get the highest possible value is largely dependent on when and how you pull the trigger. If you’re unwilling to become fully ready, you might have to adjust your expectations. Perhaps your goal should simply be to run a good race—not finish big.