Is Now the Best Time to Sell Your Business?

While the importance of timing is paramount, it tends to be underestimated when considering the sale of a business. Determining the “right” timing is increasingly difficult in today’s environment with many complicated external factors impacting business value and marketability. These external factors include unstable and unpredictable economic climate, rapidly evolving technologies, unreliable funding sources, and uncertain capital gain tax rates.

Regardless of the industry, many business owners feel it is considerably more challenging and unpredictable to be in business today than it used to be. They generally feel that they are forced to work harder without associated financial rewards. There is also an underlying concern that if the business is not marketed when it is still performing well, things can change for the worse and the value of the business can significantly decline, threatening their retirement and future family financial security.

Determining optimal timing of a business sale is far from a science. An eye must be kept on general market conditions and other external factors, while remaining focused on positioning and preparing the business for a future transaction. Through planning and preparation, timing of a sale can be optimized by capitalizing on an alignment of:

  • Industry conditions that provide a favorable outlook

  • Strong sales momentum with continued expectation of expansion

  • Identifying an acquirer willing to pay a premium

External factors play an important role in the timing decision; however, the reality is that timing is also highly influenced by company specific and personal factors such as retirement, health, partner/shareholder disputes, burnout, boredom, cash flow pressure, desire for asset diversification, and perception of future risk amongst a variety of other reasons.

An important factor of the planning process involves assessing many aspects of both your business and personal life. Observing where you and your business stand today will help you understand the realistic options available and develop worthy exit strategy goals and timing. In order to do so, you must give thought to what life looks like following a transaction. In thinking through what matters most to you and prioritizing goals, you will be better equipped to create your desired future. Answering the following questions will help develop clarity of thought:

  • How much liquidity do you need and/or want?

  • Are you open to a short or long term payout?

  • Are you open to an earn-out deal structure in which a portion of the transactional proceeds will be tied to your company achieving certain post-closing benchmarks?

  • Are there certain employees that you want to financially reward for helping you build the company?

  • Are there certain employees whose positions you wish to protect post-closing through employment contracts?

  • What role do you want under new ownership and how much flexibility do you desire post-transaction?

  • Would you like to or be willing to retain an ownership/equity interest going forward?

It is important to look introspectively at the answers to these questions to determine what exit strategy options make the most sense to pursue.

A merger and acquisition professional and other trusted advisors with related experience should be engaged and consulted to help you objectively sort through the realistic options that are both available and consistent with your professional, financial, and personal goals and timeline. An M&A professional will help you to fully consider the range of transaction alternatives available, and set you on a path to achieving attainable goals that align with your desired plans for both your company and personal well being.