Sell Your Small Business RIGHT NOW!
“Why did I wait so long?”
“The business is really struggling, I think I’m finally ready to sell.”
“If I’m honest with myself, I should have sold the business 5 years ago.”
Real quotes from real business owners. Obviously we don’t know if RIGHT NOW is the right time to sell your business, but it’s certainly the right time to understand how to pick the right time. Barbara Taylor shows owners some key principles. Posted with permission (see original article here).
3 Principles Of Timing The Sale Of Your Business
There are a lot of messages out there about selling your business, some of them accurate, some laughable and others dangerous. One of my least favorite messages — often employed by business brokers trying to get listings — is the “we get you top dollar” promise. While most business owners would like to get the highest possible price for their business, the notion that someone else can get it for you is a half-truth.
Like winning the Triple Crown, selling your business for maximum value is an enormous accomplishment. It’s also a feat that rests squarely on the shoulders of the entrepreneur. Nobody can run this race for you.
If you want to sell your business for top dollar someday, timing will be a big part of the equation. Following are three principles of timing the sale of your business:
Sell When Your Business is On an Upswing
Selling a business is often a counterintuitive process. One of the many ironies of business ownership is that the best time to sell your business is when you’re least likely to consider it. Who wants to leave the party when sales and profitability are at an all-time high?
Many business owners make the mistake of trying to sell when financial performance has flattened out, or (gasp!) started declining. There’s a misconception that you can explain away lackluster numbers with self-deprecating excuses. These might include the lack of installing a formal sales team, admitting that business decisions were made for personal reasons, or not having the heart to fire employees or trim certain expenses.
Buyers are smart, however. Very smart. And they will typically only pay for what your business is worth today. They rarely pay much, if anything, for past performance or future potential. While the past and present factor into their analysis, the valuation of your business will be heavily influenced by the most recent fiscal year.
Keeping with the sports analogy, athletes work hard to peak at just the right time — the Olympic games, the French Open, the Belmont Stakes. The same holds true for selling your business. If you want the big money, you’ll need to sell your business at its peak.
Sell When the Market is Good
My husband Chris and I have been working in the business-for-sale marketplace since 2006. To say that the window of opportunity for selling a business closed during the Great Recession would be an understatement. It pretty much slammed shut. Business owners who were planning to exit between 2009 and 2012 had to put their plans on hold for years until the market turned around.
The market for selling a business happens to be excellent right now. The window of opportunity is open, and should be blowing a strong breeze for the next three years. Smart business owners sell when the market is good. Many, however, get lulled into a false sense of comfort and ride the wave of business ownership too long.
Sell When You’re Ready to Let Go
Even if the first two conditions are in place, you’ll have a hard time getting across the finish line if your head isn’t in the game of selling. According to John Leonetti — exit planning guru and author of Exiting Your Business, Protecting Your Wealth — there are two components to exit readiness: financial and emotional.
It’s no secret that business owners tend to neglect planning for their own retirement. We plow all of our money back into the business, resulting in a portfolio that is the opposite of diversified. Most of our wealth is trapped in the illiquid equity we’ve built in our business, with little in the way of savings, investments or sources of income outside of our business.
Here is a quick rule of thumb: If your business represents more than 50% of your net worth, you may not be financially ready to sell.
The second component to readiness — your mental and emotional state — is one of the most overlooked and under-appreciated aspects of selling. It is difficult to sell something you’ve built over years or decades, something that brings definition to your life and identity, something you love.
One predictor of emotional readiness is the extent to which you’ve considered what you will do post-sale. A good exit typically involves an owner who has something in their life that they are moving towards; more time with family, involvement in a favorite charity, pursuing a new interest or business venture. It’s hard to make good decisions when what lies on the other side of business ownership is a gaping abyss.
Selling a business can be a long and often gut-wrenching process. If you’re not 100% ready and committed to going through with a sale, it can be best not to leave the starting gate.
It will take a team of talented people to help you sell your business. Whether or not you get top dollar, however, will depend largely on when you decide to pull the trigger. If you are unable or unwilling to hit the trifecta listed here, you may need to adjust your expectations from finishing big to being satisfied with simply running a good race.
Author: Barbara Taylor
Barbara is co-founder of Allan Taylor & Co. and a former New York Times blogger. She has been a small-business owner since 2003. Barbara lives with her husband, Chris, and their two sons in Northwest Arkansas.
This article originally appeared here.
A revised version of this post originally appeared on Barbara Taylor’s blog at Forbes.