I was recently asked for feedback on if there is a “best time” in the market to sell one’s business. Recent market activity on business sales is on the rise. That trend is projected to continue and increase with an influx of baby boomer owned businesses coming on the market in the coming years. But is there a right time…here are a couple of thoughts to consider…
Timing is important, certainly, but if the business is not ready…under-performing financially, inaccurate financial data, too much emphasis on owner control, identified or pending risks, not generating enough cash flow to realize a price to accomplish your financial needs/objectives, to name a few, probably have more to do with the sale than pure timing. Another very important, but usually overlooked item is your emotional readiness to let go of something that has defined you.
We are entering an unprecedented time in the market for sales of businesses…lots of baby boomers retiring, thus driving substantially more supply than potential buyers. The wave is just starting…the number one reason for business sales in the last year is retirement. That said, the recent market activity has leaned more toward the seller than buyer. This is mostly true for businesses valued at over $2.0 million. The market for businesses valued under $2.0 million is slanted toward the buyer and it’s projected to continue and rise in that direction.
Realistically, if your numbers (EBITDA or SDA-Sellers discretionary earnings) will drive the sale price you’re looking for using a multiple range of 2-4x (3-5x for businesses valued above $5.0m), then there may be no better time than the present to get things started. The above multiples are a realistic range…to go much above that means you are unique and doing something others in your industry are not or haven’t figured out.
In essence, market readiness has more to do with positioning the business to make it attractive for someone to buy…good financials, growing market or the ability to show those prospects, positive trending results, management talent (Business not tied solely to Owner or one person), ability to address common risks and show how you have managed or mitigated those and of course accumulating all of the business intelligence and data necessary for a prospective buyer to review and quickly get through the process…this latter preparedness shows your sophistication and will set you apart from the crowd. This process also helps to identify gaps you may not be thinking of and should be addressed because a willing buyer will want to know.
You generally get only one chance to sell your business. It’s not easy or like waving a magic wand and can be a grueling, time consuming process. During this process someone still has to focus on running the business and not get distracted from this…most deals fall thru because of unrealistic price expectations or negative trends in the business…typically when the owner gets caught up in the sale process and doesn’t focus on running the business. Working with someone who has been through the process before will focus efforts on the priorities, identify the issues most important to the buyer and most importantly allow you to continue driving value in the business, so that you will realize your ultimate reward.