Understanding the Timing of Your Exit: When is the Right Time to Sell?
You have finally decided it’s time to sell your business, but is it the right time? You may want to pump the brakes because, believe it or not, some factors play a role in maximizing your business’ sale price. Understanding timing, key aspects of influence, and red flags will help you decide when to sell.
Understanding the Strategic Importance of Timing
Timing matters when it comes to selling your business, but why? One primary reason you want to get the timing right is because of its impact on valuation. Selling during a strong economy means buyers are willing to pay higher valuations compared to a struggling economy where you might struggle to find buyers at all. Keep in mind that waiting too long in a strong economy could mean that you miss your opportunity if the economy takes a downturn.
The same idea applies to your business’s performance. Ideally, you’d like to sell when your performance is at a peak since buyers are drawn to businesses with upward trends leading to higher bids. Again, waiting too long hoping for even better performance could lead to disappointment if you miss the peak and sell during a decline.
Key Factors Influencing Exit Timing
Market Conditions
Market conditions will play a role in deciding when to time your exit and your business’s valuation. As mentioned above, the broader economy and its state will influence your business’s valuation and the availability of buyers. Economic growth and access to capital make for more buyers and increase competition of buyers, driving up valuations.
Your industry may also experience an economic boom or seasonal fluctuations, in which case, selling during a period of strong revenue would be favorable. Merger and acquisition trends can also be very telling of when is a good time to sell. If your industry is experiencing a lot of M&A activity, it indicates that it is a seller’s market.
Personal Circumstances
Your individual goals, life stage, and overall well-being can influence when it feels right to exit your business. What is the reason for selling–retirement, a career change, or looking for new opportunities? Each of these can have different impacts on the timing and what you will accept as a valuation. Selling your business before burnout affects your decisions and ultimately, the value of your business, is also something business owners should be aware of.
If your family is involved in your business and you plan to have a family member succeed the business, then their readiness will also have an impact on your timing to sell. If the business’s mission is extremely important to you, then you also might take longer selling in order to find the right buyer who has the same mindset.
Financial Health of the Business
One of the most critical factors that buyers will assess when they are considering purchasing your business is its financial health. Having well-documented stability, growth, and profitability makes your business more appealing and allows you to expect a higher valuation. Ensuring you have positive cash flow is a must when preparing for a sale. Some important indicators to pay attention to when assessing your financial readiness are profit and loss statements, your debt-to-income ratio, cash reserves, and scalability.
Red Flags: When Not to Sell
Here are some red flags to consider when you are ready to sell your business. Identifying these early will allow you to address any issues. Weak financial performance is a sign that you may not be ready. This includes declining revenue, inconsistent cash flow, and high debt levels. Market trends that show an economic downturn or industry decline are also a time to pause before selling.
The Role of Professional Advice
Selling your business is too important to take lightly, which is why consulting with financial advisors, brokers, and industry experts is crucial. These professionals have tools and resources for business valuation and market analysis that will aid in navigating the negotiation process to secure the best deal possible.
There are many factors to consider that may affect the timing of your exit, many of which will have a profound effect on your business’ valuation. You want to think about these things strategically and that includes hiring professionals to ensure that you will get the valuation that your business deserves. HartmannRhodes are here to help you plan your exit at the best time in order to reach the best valuation possible. Reach out today to schedule an appointment to learn more.
Mark Hartmann is a three-time Inc 500|5000 CEO with a rich sales, operations, and leadership background in the insurance, financial services, and healthcare sectors. With extensive experience growing and selling his own businesses, Mark leverages his expertise to help owners grow and sell businesses valued at $1M —$25M. He’s earned a Master of Business Administration from Eastern University, a master of science degree in organizational change management from St. Elizabeth University, and a graduate certificate in executive coaching from Columbia University. Mark’s professional certifications include Certified Mergers and Acquisitions Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB).