Thinking of Selling?
The biggest financial transaction in a private business owner’s life is likely the sale of his or her business. Although many transfers are predetermined, others result from unplanned events, which is why it is essential for business owners to have an exit strategy.
Operate your business as if you are going to sell it. Most owners assume they will operate the business until retirement. But their priorities or interests could eventually change-or be forced to change due to unforeseen circumstances such as illness or disability.
Timing IS everything!
The best time to sell your business is when you’re on top. The company is doing well and the industry is flourishing, and next year looks even better. Cyclical factors are important, for example, in retail most revenue is earned in the fourth (4th) quarter. Sell in the first (1st) quarter of the next year to show good revenue and the lowest inventory levels.
There are other factors to consider when deciding if NOW is the right time.
Market Conditions, Local Economy & Industry Trends
Market Conditions have a significant impact on your ability to sell a business and the value that you ultimately receive. The supply and demand of businesses vary over time and across industries. Current and anticipated market trends and tax policies may suggest the optimal times to sell as well as availability of bank financing.
Local Economy – analyze the state of the local economy, identify the demand for businesses like yours. Is the city growing? What is the state of other businesses in the metro area. How about the cost of living, local & state taxes and the local workforce. Understanding these factors can help determine how successful selling your business might be at this time.
Industry Trends also have a significant impact on your ability to sell. Is your industry seeing growth in the market? Are you providing a product or service with strong consistent demand? As an example, it will be more difficult to sell your construction business if housing development is declining in your area.
Once you establish the timing is right it is critical to understand if your business is actually ready to sell!
In reality it is better to operate with the expectation that you will one day sell your business. Then should the opportunity or circumstances arise where selling is the goal, your business will be ready. It is best to sell when your business is doing well. That seems like a no-brainer but if you want to get a good price then it is essential. Predictors to determining if your business is ready to sell include:
- Financial Incline – a consistent upward trend over at least the last three years is a sign to a potential buyer that the business will experience future growth.
- Diversified Client Base – It is generally accepted that no more than 30% of your income should be attributed to one customer. Ideally your business should have lower customer concentration with income derived from many customers.
- Strong Staff – a strong staff with some long tenured employees and a system that runs like a well-oiled machine is more attractive to potential buyers. It tells them something about internal infrastructure and employee retention.
- No Impending Capital Expenditure – a new owner does not want to be faced with high expenses so it is wise to make sure that significant capital expenditures have been accounted for well before you start the sale marketing process.
An Experienced Business Intermediary will be able to advise you on the current market conditions and help determine if your business is ready to sell. Visit us today to start the selling process.