When is the Best Time to Sell My Business?

At A Neumann & Associates, we get asked the question “When is the Best Time to Sell My Business?“ all the time.  The answer is tricky.  While there are “better” times than others, quite honestly there is no way to tell “the best” time to transfer out of a business.  With that said, there should be a methodical approach to the transfer by the business owner and there are indeed some guiding principles to be considered.

“We encourage our clients to take an objectives-driven point of view when contemplating an exit from the business,” says Achim Neumann, President. “It is vital to identify exactly what the ultimate goals are and then to see if a sale will meet those goals.”  Sounds simple, but sometimes this process can take years to properly execute.

Among many, some of the most commonly expressed goals of a sale include retirement, financial security, lifestyle change, taking care of employees, and enabling future growth of the company.  Each business is unique and the decision to sell is truly an individual one based upon very personal circumstances.  Neumann adds, “The key is for the business owner to acquire as much accurate information as possible and take steps to position the company for a proper transfer.  This will give the owner the best chance to maximize financial return and meet his/her stated goals when the time comes.”

With this in mind, let’s examine some of the essential steps in this process:

1.  Knowing the true value of the company.

If a business owner assumes that they know what the business is worth, he/she will be sadly mistaken.  Commonly used “rules of thumb” such as multiples of revenue, EBITDA and the likes are fine for cocktail parties but certainly not as the basis for a sale.  An independent and accredited fair-market valuation of the firm should be performed at least every 2 years.  This unbiased and multi-dimensional report will provide a thorough analysis of true worth as an ongoing concern.  Guessing is not an option.

2.  Knowing the true marketability of the company.

Through the valuation process, the business owner should be given a complete marketability analysis from an experienced Mergers & Acquisitions professional.  It is crucial for the business owner to understand exactly how the business will be received by the buying and financing communities.  Investors and banks will be looking at certain things and asking certain questions – the owner should know these in advance and be able to provide the correct answers.

3.  Understanding what drives value and marketability.

With the valuation and accompanying marketability analysis in hand, the next step is to identify the specific value drivers within the firm and enhance the attractiveness and worth accordingly.  In preparing the business for sale, it is essential to eliminate any perceived dependencies – on ownership, on a specific employee, or on a specific client.  Moreover, specific steps should be taken to improve vendor relationships, expand the client base, streamline fulfillment systems, and empower dedicated employees.

4.  Understanding the transfer process completely.

Finally, the business owner should be aware of (and completely comfortable with) the exact selling process including the owner’s role, the correct team to assemble, and how long the process takes.  If the above 3 steps have been taken, this transfer process will be evident and the owner empowered to tackle this unique proposition.  With a professional M&A team on his side and having taken the proper steps to position the company, the business owner will maximize the firm’s performance, ensure confidentiality, and execute an efficient sale.

“You can’t time the market – either on Wall Street or on Main Street,” says Neumann. “However, what small business owners can do is clearly define their goals and then put themselves in the best position possible to execute a sale.  If this is done properly, then the financial return from a transaction will be maximized and odds are the other objectives will be met as well.  This is the ideal scenario.”

There is no “best time to sell,” but there is a “best approach to selling,” and it is incumbent upon ownership to know this and utilize it.  Simple concept?  Yes.  Always done – and done properly? Not so much.