“Rob, how do I know if it’s the right time to sell my business?”

“Rob, how do I know if it’s the right time to sell my business?”  That’s usually the second question I’m asked when I meet business owners. The first, unsurprisingly, is pretty much always “How much is my business worth”.

In fact, answering the second question is very difficult because the answer encompasses two different sets of indicators – commercial and personal.

In purely commercial terms, the ideal time is when the business can demonstrate consistently rising revenue and profit, and more importantly, can demonstrate an expectation of more to come so it’s best to time a sale when the business is in a growth phase but not at its peak.  A typical business growth curve is a repeat of growth, plateau, investment, growth. Businesses grow in the early stages and then plateau and need investment in order to get to the next level.  That investment could deliver what the business needs in order to grow – it could be new equipment, new people, new systems, new product development for example.  Without that investment the tendency is for the business to flatline and eventually decline.

So, from an acquirer’s perspective, the business is unlikely to warrant a premium price (there are exceptions but they are rare). Equally, if the business is at the top of the growth curve, an acquirer is also unlikely to pay a premium price because investment for growth will be required immediately.

That’s the commercial view. But the decision to sell a private business is not a purely commercial decision.

Whilst there is no set formula there are some indicators that will help you make the decision.

Personal Indicators

1. There are changing personal circumstances that may in future make a sale essential

2. It’s a great business but it’s taking too much of your time and energy

3. You have a compelling reason to want to sell, e.g., retirement, plans for a new venture, etc.

4. It’s a family business but the next generation aren’t interested in taking over

5. You feel that you’re emotionally ready to step away from the business

6. You’re feeling burnt out and passion has been replaced with exhaustion

7. Deep down you feel the business needs a new leader to achieve its full potential

Commercial Indicators

1.  The business is doing well financially and is growing

2. Your business is in a growth sector and has potential to capitalise on that

3. You have a strong management team that runs the business without your daily involvement

4. You have a business plan and financial forecasts that you’re confident you can meet

5. The proceeds of a sale are likely to meet your future financial needs

6. The business will need further financial investment if it is to grow

7. A sale could solve some major business issues, e.g. new talent

If your answers are mostly “Yes” then it’s time to start putting some plans in place. Whilst doing so, bear in mind that it takes a considerable time to sell a business – typically 9 -12 months.  If you have a professional valuation that shows you are unlikely to get the price you expect, then you will need to spend some time building up shareholder value, so that could easily be a further two years.

If the answers are mainly “No” but you know that at some stage you will want to sell the business, then it would be wise to prepare a strategic “growth to exit” plan that will increase the value of your business, making it more attractive to potential acquirers and more likely to achieve a better price when the time comes to sell it.

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