Selling a privately held business can be a complex and challenging process. Many factors need to be considered to ensure that the business owner receives the best possible valuation and an optimal time to sell. In this blog post, we will discuss key indicators of a high valuation and the best time of year to sell a business.
We will also explore what business owners should know before entering the process of selling their business, how to determine when to sell their business, and when to use a business broker to build an exit plan and sales strategy. Additionally, we will examine situations where closing the business and liquidating may be the best option.
When is the Best Time to Sell a Business?
Determining the best time to sell a business can be challenging. Some key indicators that can signal a high valuation and an optimal time to sell include:
- Strong financial performance: A business that has shown consistent financial growth and profitability over a sustained period is more likely to attract buyers and receive a higher valuation.
- A unique value proposition: Businesses that offer a unique product or service that sets them apart from competitors are more likely to be attractive to potential buyers.
- A stable customer base: A business with a durable and diverse customer base is more attractive to buyers, as it indicates a steady stream of revenue.
- A healthy industry: Selling a business during industry growth and stability can lead to a higher valuation, as buyers may be more willing to invest in a thriving industry.
The best time of year to sell a business can vary based on industry trends and economic conditions. For example, businesses in the retail industry may want to consider selling in the months leading up to the holiday season, when consumer spending is high. Alternatively, businesses in the construction industry may want to sell during the spring or summer months when the weather is favorable for construction projects.
What Business Owners Should Know Before Selling Their Business
Before entering the process of selling their business, business owners should be prepared for the various steps involved. These steps may include the following:
- Valuing the business: Business owners should obtain a professional valuation of their business to determine its worth in the current market.
- Preparing financial statements: Business owners should ensure that their financial statements are accurate and up to date, as potential buyers will closely examine these documents.
- Preparing marketing materials: Business owners should create a comprehensive marketing package that includes information about the business, its financials, and its growth potential.
- Finding potential buyers: Business owners can work with a business broker to identify potential buyers and negotiate the terms of the sale. A one-off buyer and/or off-market transaction typically leads to a business owner leaving money on the table and not getting true market feedback on company value.
How to Know When to Sell a Business
Business owners may want to consider selling their business if:
- The business is no longer profitable: If a business is consistently losing money, it may be time to consider selling, finding an owner who can right the ship, spend the time, energy, and money to modernize the business.
- The business owner is ready to retire: If a business owner is ready to retire, selling the business may provide a way to exit the business and ensure a comfortable retirement before any unfortunate, and unforeseen, health events.
- The business is facing a significant challenge: If a business is facing a significant challenge, such as a structural change in its industry or greater market, it may be in the best interest of the owner to sell the business while earnings remain strong.
Jodie Cook at Forbes wrote a great article on how to diagnose when the time is right to sell. Read her thoughts here.
When to Use a Business Broker to Build an Exit Plan and Sales Strategy
A business broker can provide valuable assistance to business owners who are looking to sell their business. Business brokers can help owners:
- Develop an exit plan: A business broker can work with the owner to create an exit plan that outlines the steps involved in the selling process and identifies potential buyers.
- Determine a fair valuation: A business broker can help owners obtain a professional valuation of their business, ensuring that they receive a fair price for their business.
- Market the business: A business broker can create a comprehensive marketing package that includes information about the business, its financials, and its growth potential. They can also use their network and expertise to identify potential buyers and negotiate the terms of the sale.
- Maintain confidentiality: Business brokers can help maintain confidentiality throughout the selling process, ensuring that sensitive information about the business is not disclosed to competitors or the public.
When to Close the Business and Liquidate
In some cases, selling the business may not be the best option. If a business is consistently losing money and has little chance of recovering, closing the business and liquidating may be the best course of action. This involves selling off the business’s assets, paying off debts, and distributing any remaining funds to the owner.
In conclusion, determining the best time to sell a privately held business requires careful consideration of a variety of factors, including financial performance, industry trends, and the owner’s personal goals.
Working with a business broker can help owners develop a comprehensive exit plan and sales strategy, ensuring that they receive a fair valuation for their business and identifying potential buyers. However, in some cases, closing the business and liquidating may be the best option. By carefully evaluating these options, business owners can make an informed decision about the future of their business.