When is the best time to sell my business?
At some point every business owner begins thinking about developing an exit strategy. I am frequently asked, “When is the best time to put a business for sale on the market?”
From a business broker’s perspective, here are a few of the key factors that determine the best time to sell a business.
The state of the national and local economies, as well as of the industry a business is in, can play a roll in the proper timing of a sale. Many of these factors are out of the business owner’s control. Fortunately, there are other elements, which if properly addressed, can point to an opportune selling time.
The optimum time to sell is when the cash flow is stable or increasing annually. Banks, as well as buyers, examine the recent economic history of a business offering. Key indicators are the amount of owner’s cash flow that the business has generated for the three years prior to a sale. Annually increasing cash flow or at least level cash flows are a must. Even a 5% drop over the prior two years spells a negative scenario to buyers and banks.
Annual sales that are rising are another indicator of the best time to sell. Like cash flow, sales need to be increasing, or at worst flat. Decreasing sales points to problems and reasons why the seller wants to get out.
Positioning in the Market:
The right time to sell can be based on how the business is positioned in the market place. If larger national firms are coming into the market, this is certainly not the time to purchase the business. An optimum time to sell is when there are no negative market factors at play. On the other hand, competitive changes and new market openings can relate to business expansion opportunities. If the seller can substantiate market growth opportunities, buyers will pay attention.
It is common for the seller to stay on for a month or two after the sale to aid the new owner in transition. However, if the seller is in a position to stay for an extended period of time to aid in transition and training for the buyer, this sends a positive signal to the market. Many sellers wait until they can’t or won’t stay for six months or more because of burnout or health issues. As an experienced business broker, my advice is – don’t wait too long! Be available to assist the new owner for a smooth transfer of ownership.