If you own a business, you may have thought about when would be the best time to sell your company. There are a number of factors to consider when deciding on the right time for the sale of your business. First, let’s discuss when not to sell. If you love what you are doing, the business is doing well, and you are not considering exiting the company for at least five years then you are probably better off continuing doing what you are doing. However, if you are considering exiting your business in the next few years, then you should probably consider what the best time might be to sell your company. We’ll list some of the factors for considering the timing on when to start the process of selling your company.
1. Revenue & Net Income Trends
a. Businesses are usually priced based off of a multiple of their net income. Buyers prefer to buy companies that have sales and net income that is increasing and somewhat predictable. They will pay more for businesses that have positive trends like this. As a business owner, you know that you can’t predict precisely what the future will be, but you can have an idea based on your pipeline and the trend of what your business has been. Buyers will also make a determination on this by looking at your financial patterns to see whether your business looks like it will continue to grow based on your history and pipeline. So ideally, you will sell when the company is doing well, and you can get the most for your business.
b. If your business is on a downward trend, then you need to assess whether you can turn the company around and try to sell for a higher valuation or you believe the business will continue to go down and you can try to sell it to someone else that can turn the company around. Are there new ideas you have to turn it around or do you have a large customer that you might get? If you think things will turn around, then you would be better off waiting until they do.
c. If the revenue and net income of the business is pretty stable and will seem to continue that way, then it’s also a fine time to sell the company if you want to sell for other reasons which we’ll discuss.
2. Do you enjoy what you are doing?
Maybe at an earlier time, you liked the work of running your business, but at some point, it may have become routine and boring to you. Most people, when they are doing something they don’t like, usually don’t do as good of a job. If you continue going along this way, the business may suffer, and the value of the company may decline.
If you don’t enjoy running the business, then you have some options to consider. Do you trust that one of your employees might be capable of doing the things that you don’t like doing and do them well enough to have the business continue to run well? Hiring someone from the outside is also a possibility, but that may have more risks and may take additional time to train them so that you feel comfortable that they can do the job.
Depending on when you are thinking of retiring and your financial needs, these are some of the options to consider when deciding whether to restructure your role in the business or sell the company.
3. How much money do you need from the sale of your company?
The reason for selling your company will factor into how much money you will need from the sale of your company. If you are going to retire, then you will need to get enough money from the sale of your company to retire, considering your lifestyle and other income from investments or other sources. A professional valuation from an experienced M&A firm or Business Broker will help you in determining this. Once you have that you can consider how much money you will get after taxes and whether that will be enough.
If you plan on working at another business or have other things that you will be doing to earn money than you may not need as much and other factors such as doing what you enjoy or another opportunity may come in to play as to when to sell your company.
4. How long of a transition period will you provide?
In almost all cases, you will need to stay on after the sale of your business to help a new owner learn the business. They’ll need to understand your products and services, employees, customers, and business processes. The length of time you will stay on can vary from as little as a few days to as long as five years or more. Whether or not you have a buyer from your industry will make a difference in how long of a transition period will be needed. Other things that can influence the length of the transition are:
- How important is your role in the company?
- How complicated is it to learn the things that you do?
- Do you have key relationships that will take time to transition?
- How long are you willing to stay on?
Relationships and knowledge take time to transfer. Some sellers like to stay on after the sale because they can often do the things they like and are good at and the new buyer can do some of the other things that they don’t want to do. Also, you can cash out the value of your ownership and let the new buyer worry about the success of the business.
Other sellers don’t want to provide an extended transition period. If this is the case you want to have a buyer from your industry and have your staff trained to do the work that you do and develop and maintain important customer relationships. In some cases, a buyer from outside the industry may pay more so if you are open to various time frames for a transition this can widen your options for buyers that could get you a higher price. You can read more on Transition Periods.
5. How long will it take to sell your company?
Companies can sometimes be sold quickly in only a couple of months, or it may take a year or more. How aggressively you want to price your business will be one factor, but there are many others. You can read more about the factors that go into how long it takes to sell a company.
6. When should I begin the process to sell my company?
On average we recommend beginning the process to sell your company within 1 to 2 1/2 years from the time you would like to exit your company after providing a transition. In most cases, this will give you enough time to sell the business and finish your transition period with the buyer. However, it’s best to discuss the specifics with a Business Broker or M&A firm that has experience selling companies in your industry. They will be able to advise you on what buyers typically expect for a transition period given your role in the company and your industry. They can also provide you with a potential selling price and an estimate of how long it will take to sell your company at the amount that you desire.
Synergy Business Brokers M&A
Synergy Business Brokers provides a confidential consultation. We will discuss the specifics of your business and your goals both in terms of price and when you want to exit the company. Together we’ll work out a strategy to help you achieve your goals to find the right buyer that you feel comfortable taking over your business and get you a price that will allow you to retire or pursue other things in life. We only get paid if we sell your company so we’ll also let you know if we don’t think we can achieve your goals and it may be better to hold on to your business until the timing is right for you given the financial considerations.
We specialize in selling companies that have annual net incomes of $200,000 to $5 Million in construction, technology, manufacturing, distribution, healthcare, and services. If you own a company that meets these criteria, please fill out our online form and an M&A Broker will follow up with you for a confidential discussion.