The best time to sell your business is NOT when you feel ready to walk out the door!
This week, like most weeks, a client asked me: When is the best time to sell my business?
That’s always an interesting question. Successful transitions can be described as the intersection of good timing, gut instinct and preparation.
Let me address those in reverse order:
Preparation – You should be prepared to sell your business tomorrow!
Usually you have no idea when the “offer you can’t refuse” to sell your business will come. Having the knowledge of what your business is worth and being certain that your organization is running in tip-top shape (and you can prove it), is powerful when that offer does come so you can respond with confidence.
Instinct – Trust Your Gut.
Thirty years of owning a business has convinced me that your gut does not lie. You know the feeling… uncomfortable, rolling anxiety, things just don’t feel right. This is your subconscious mind sending you signals, the genetic “fight or flight” feeling.
When you have that feeling, you must investigate if this might be the best time to sell. Research what the future may hold for your industry, business, or concept. Focus on developing your vision of what is just beyond the horizon.
Are you prepared to go there?
Do you WANT to go there?
If your gut senses something, find out what it is and then “follow your gut!”
Good Timing – Give your buyer a chance to make money!
You may ask why you should care about the buyer making money, but there are actually many reasons.
You want the buyer to see a clear path to earn back their investment, ie: would you buy a business that you felt was at the top of the business cycle? Probably not, so don’t expect your buyer to either.
My advice is that the best time to think about selling your business is two-thirds of the way up the business cycle. This will show a good history of performance, and still give the buyer the opportunity to recover their investment.
Chances are, you will be providing seller financing or have some level of earn-out as part of the transition when you sell your business. In both cases, the more successful the buyer is at recovering his/her investment, the more likely you will realize 100% of your selling price.
So the real answer is:
No one can pinpoint the exact date you can sell or transition your business for the best price. But, you know your business and your industry best. Use that knowledge and the instincts you’ve developed to be proactive and be prepared for when the time is right to sell your business.
Denying your gut instincts or waiting until you are emotionally or physically ready to walk out the door before you start preparing to sell can have a negative impact for the rest of your life.
Even if you plan to own your business until you die,
…be ready for the unexpected offer or event that might change your mind. You can’t control the market, but you can prepare and recognize the signs so you’ll get to enjoy the Life Beyond Business™ you deserve.