When Is The Best Time To Explore Your Exit Options.
Written by Chris Davies
You have spent years building up a successful business, and now you are thinking about selling it. Is your exit strategy in place, how do you know exactly when to cash in and move on? When exactly is the best time to sell?
Of course, the answer to this question will vary depending on the specific circumstances of you and your business. There will always be multiple reasons why an owner would want to sell their business. It could be that it’s ripe for growth and needs someone new at the top, maybe the risks no longer seem in proportion to the rewards. Or quite simply, you want to collect on all the hard work and time you have invested over many years and retire.
Whatever the reason may be, the big questions remain the same:
1) How can you ensure you get the best price?
2) Is there a right time to sell?
3) Will someone buy us?
4) How do I stop my competitors from finding out?
The answer is not always simple, but I can start with this; There is certainly a wrong time.
For example, the business is suffering falling profits or other stresses, clearly this would not be the ideal time to look to sell, because it screams fire sale. If a Business experiences a loss of interest from shareholders, or personal issues among the management team, a seasoned acquirer will very quickly pick up on this.
However, we can still examine some general guidelines and thought processes that you can apply to your own situation and discover a good time to sell.
In an ideal world , your business should be on the up when you offer it for sale, with growing profits, reinvestment, employment opportunities and new markets, geographies or product lines.
Also in that ideal world the Business will have provided a suitable lifestyle over the years, and now, with your health fully in check the time has come to retire and explore those exit options.
For many its hard to let go… I have lost track of the number of times I have heard business owners tell me:
“This is my baby. I have put a lot of blood, sweat, tears and money into this business and now someone else will benefit”
The reality though is this – Not all business owners can be so selective on timing.
Decisions to sell often involve personal circumstances; ‘Parents are both very ill and you want to spend more time with them,’
Often circumstances out of your control force the issue; ‘Recession hits in 2009,’ ‘Covid 19 strikes in 2020 forcing the doors to close just as things were picking up’.
Lets assume you don’t have someone banging down your doors with fistfuls of cash, how do you know when it is the right time to sell? Some companies will simply run out of money and collapse, this will make the decision for them. If however the Business finds itself in the black, with some pre-planning and help from Starling Corporate you can take a much more active role in planning for your Company’s future with or without you.
To be frank, you’ll never know when the best time is to sell. Instead, you should be searching for a good time to sell. We can examine some general guidelines and thought processes that you can apply to your own situation and discover when that right time is.
Importantly though, you must realise that there is no one single factor that will tell you it’s time to sell. There are several factors working in unison which can indicate a good time to sell.
Is your business ready to sell?
A good time to sell would be when your company has had a consistent history of growth, with a relatively large growth trend in the recent year. Potential growth is a key component that buyers will look for.
You may need to be able to objectively demonstrate recent growth to potential buyers. By doing this, we will be able to defend the price you seek when your business enters the market.
Can the current market facilitate the sale of your business?
Certain market factors will always affect business sales. Sometimes these factors will be beneficial to you as a seller, and sometimes they will not. For example, has there been a number of businesses in your industry (similar to yours in both size and operation) which have either sold or been acquired in the recent past?
In general, there are several market factors which can provide a solid indication of a good time to sell:
▪ A high volume of compatible business sales in your industry
▪ An upward trend of sale prices
▪ An upward trend of strategic acquisitions
▪ An economy that shows signs of strength and growth
▪ Affordable debt financing
It may feel counterintuitive to sell when things are going well, but that is precisely the right time to sell.
Most buyers look to acquire a business that is on an upward trajectory, so you’ll have more interest and likely will be able to sell more quickly.
Another important note reference the recent COVID 19 PANDEMIC is to not be discouraged because of a poor economy. This especially applies to businesses looking for strategic acquisitions. Sure, when the economy is booming, acquirers will have the extra funds to invest in smaller businesses in a riskier fashion. But when times are tough, their own profits may be under pressure, which can drive them to look for external growth through acquisitions.
Are you personally prepared to sell your business?
There are two sides to this coin — and both are frequently looked past until it’s too late.
The first part is a bit more obvious and very relative to this article … Finances. Do you have the financial security to RETIRE and advance to the next stage of your life?
The answer to this will vary based on every seller’s individual circumstances and priorities. That’s why it’s a good idea to go over your future goals and understand the financial needs required to fulfil them. Even an exercise as simple as writing them down can help. Remember that this typically won’t involve your individual needs alone, but your family’s needs as well. If the thought of this type of preparation feels a bit overwhelming, consider speaking to a financial advisor for help.
The second aspect is one I touched on earlier,
Most Business owners are very attached to their business, maybe even more than they think. “You grew this business from the ground up, and likely invested a significant portion of your life into its success”. The big question here is this: are you ready to walk away from your business, without looking back? For lifetime entrepreneurs, answering this question will be easy. They’ll be ready for the next challenge, which they’ve likely already had their eyes on for quite some time: the next business to build, grow, and sell.
For others however stepping into retirement can be a daunting time and might not be as easy to handle, you might be unsure about what to do next. This will take an honest, personal assessment to analyse what drives you, and how you can continue to satisfy that drive through other means.
All in all, understanding yourself and your motivation can ultimately save you from a common mistake many business owners make, of waiting too long to start the process, of burning out. Burnout often leads to an anxious, immediate ‘need’ to sell a business, which— when all is said and done— can result in a premature sale at a less than favourable price.
Will someone buy us?
You can’t sell unless someone wants to buy you.
But how do you weigh the costs of letting the competition know you are for sale against the possible reward of selling?
You don’t have to, this is where utilising the professional services of Starling Corporate will really benefit you, we are used to dealing with buyers across multiple sectors, we create industry leading marketing documentation on your behalf & most importantly we do all our work within the confines of Non-Disclosure Agreements and with confidentiality at the forefront of all our working practices. Quite simply we can bring buyers to the table, we can facilitate meetings and extract offers. The generation of multiple offers will often increase the company value.
Closing thoughts: Look for a good time, there usually is no perfect time
In the end, there is no perfect time to sell. Even if there was, you would never know it until it had already passed, rendering it impossible to spot beforehand. All you can identify are good times to sell. What you need to identify is harmony of the three main factors we’ve discussed:
1) Your business being ready to sell,
2) Market forces which can support the successful sale of your business
3) Being personally prepared to sell your business.
In the end, most business owners don’t complete the sale of their business on their own. Think about it: you’re an expert at building and operating a business. You’re not an expert at selling them. Selling a business is often times a complicated, unfamiliar, and daunting task. That’s why turning to Starling Corporate will yield significant benefits. We will help you maximise the sale of your business, allowing you to receive the very best possible price with the best possible service.
About the Author:
Chris became involved in M&A after being part of a successful family business that was acquired by a trade buyer. This has allowed for valuable insight into the process from a practical viewpoint and allows for real life advice to be given. Mr Davis can demonstrate expert knowledge across all major sectors and has particular interests in Oil & Gas, Construction, Transport and Services.
To sell your businesses, or for more advice on selling please contact the author at email@example.com