When is the Best Time to Sell a Business?

Determining the optimal time to sell is a challenge faced by many entrepreneurs. There are three main factors to consider and balance when determining the best time to sell your business:  

        ·     Your personal goals

        ·     The growth and financial performance of your business

        ·     Overall economic conditions and growth in your industry

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In an ideal world, and to obtain the best possible valuation, your personal interest in exiting or selling the business would come at a time when the business is growing, and when conditions drive buyers to pay attractive valuations in your industry. The best valuations for any company can be achieved when there are multiple competing buyers who all want to acquire your company, and who are all bullish on the short-term economic outlook -- but before the M&A cycle hits its peak. If you find yourself considering a sale in this type of environment, considerations regarding timing are relatively straight-forward.

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But like many other aspects of life, these three factors might not all conveniently align at the same time, and other issues may also add complexity:  

‍        ·     Retirement, family issues, health concerns, personal finances, burnout or new business opportunities can all drive the decision to sell.

        ·     Companies with more than one principal shareholder also face additional challenges in aligning the goals of all the shareholders or investors.

        ·     The process to sell can take up a to a year and the buyer may also want you to stay on for some length of time after the closing.

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‍Deal structure and selecting the right buyer can overcome some concerns related to timing.‍

If your company is growing and you are considering an exit, it's natural to be concerned about leaving money on the table if the company continues to expand. But the company is generally of most interest to buyers in an upswing, and this is when the highest valuations can be obtained. In this type of scenario, a partial sale to a private equity firm or other buyer is one option that can allow you to diversify and take money out of the business, while also retaining some equity for a future sale and aligning yourself with a source of growth capital and an experienced team.

If your company has hit a sales plateau or is facing other challenges, an exit to a strategic buyer in your industry may provide additional scale and resources to help the company continue to grow. In this type of scenario, a transaction could include an earn out that allows you to share in future growth. Or if you will stay with the company post-sale, an attractive commission or bonus structure in your employment contract can also add significant value.

We have helped many entrepreneurs work through decisions regarding timing. Some clients have made the decision to postpone a sale while they continued to build and develop the company, watched market conditions, and successfully sold several years later. Others have balanced all the issues, and decided to sell rather than wait.

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But in all cases, the decision requires a careful consideration of your own personal goals, combined with a realistic and complete understanding of the valuation of your business, your growth projections, and all the risk factors associated with moving ahead or waiting.

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If you are evaluating timing, we can help provide you with information to develop a solution that strikes the right balance in achieving your short- and long-term financial and personal goals. Email us for our detailed questionnaire to help you determine the optimal time to sell, or schedule a free call.

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