16 October 2023: Selling a Business: 4 Questions
Trying to time the market when selling a business is, for all practical purposes, nearly impossible. But if that’s the case, how does one know when it’s “the right time”?
When considering selling a business, the “right time” is usually more dependent on the business’s condition and the business owner’s plans than on identifying the top of any market.
Yes, market conditions impact aspects of the business and can, as a result, impact the sale. For example, interest rates might eliminate certain potential buyers as credit tightens. And there may be downward pressure on valuations to reflect lower earnings as interest rate expenses increase. But for a healthy business, such impacts are generally small, all else being equal.
This month’s LIVE STREAM on The Brokers Roundtable℠ had to be postponed due to an unexpected death in the family of our guest. Because the topic – the tax impact of selling a business – is so important to what we do, we’re rescheduling him and will announce the new date shortly. In the meantime, we’ll either be interviewing one of our network business brokers – with a Q&A at the end – or fill in with a Thursday Special.
If you are a member of The Brokers Roundtable℠, simply go to Community Events and click on the event title to RSVP to join this session at 3 PM eastern time on Thursday, 26 October. If you’re not a member of The Brokers Roundtable℠, you can join here.
There are several important business and personal aspects to consider when deciding when to sell your business. Let’s look at four of them.
The Business’ Financial Condition
Is your business healthy financially? A financially solid business is generally perceived by buyers to present a lower amount of risk.
A financially stable business suggests it will be able to withstand a bumpy market, the loss of a customer or many of a dozen speed bumps and setbacks that any business can experience. That ability gives buyers a sense of reliability. And that, in turn, can often mean your business can command a higher multiple of earnings.
Courses! Courses! Courses!
Many of you have asked if our Flagship Course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, could be made available on a module-by-module basis. Instead of enrolling in the complete course, could you enroll only in the module you wanted? We’re happy to report that this is now possible.
We’ve broken our Flagship into six separate modules (or module groups) to give you all the flexibility you need to learn only what you want to learn – and we’ve moved them all over to the new Brokers Academy in The Brokers Roundtable℠ . The Flagship is still available but the modules are now available individually.
You don’t need to be a Member of The Brokers Roundtable℠ to access any of these courses but if you are, you’ll receive a 20% discount on any course. If you’re not a member of The Brokers Roundtable℠, you can join here.
If your business has been generating consistent revenue growth and profitability over the past four, five or six years, it’s more likely to attract a more qualified buyer. Such buyers are more willing to pay a higher price for such sustained stability.
Do You Have Your Team in Place
We’re not talking about your management team but rather your advisory team.
As we posted last week, selling a business ain’t for sissies. In fact, it’s not for amateurs either. Entrusting the sale of your business to anyone untrained in the field is like hiring your plumber to replace your knee. There may be a remote chance he’ll get it done but it’s unlikely to look very pretty.
Aside from a qualified business broker, preferably one with a Certified Business Intermediary (CBI) designation, the talent you need includes a transaction attorney (not your divorce attorney or the one that gets your kid’s reckless driving citations reduced to “improper signaling”), a tax accountant who can help you get more of the money you worked hard to earn and possibly a financial planner; someone who can advise on the best way to deploy that money.
Such advisors can help in most of the critical aspects of selling a business including setting realistic price expectations, establishing a reasonable asking price, structuring the sale to reduce the seller’s post-closing legal or financial exposure to a minimum, structuring the financing so that capital gains taxes are reduced, setting up and utilizing financial vehicles that will give long life to the net proceeds and more.
What’s the Market Niche Like?
What’s the market demand for your type of business?
Different business verticals experience different levels of demand at different times and understanding that demand for your business is extremely important when considering a sale.
For example, we’re currently seeing very high demand for home and business contract services such as HVAC, plumbing, electrical and landscaping companies from small private equity groups and search firms.
We’re also seeing strong demand for IT firms that have robust recurring revenues combined with a “break/fix” revenue stream.
On the other hand, except for strategic buyers, the demand for service providers such as real estate companies, small retail businesses and title and escrow companies has fallen off.
We’ve posted before about the need to know your buyer. Having an accurate sense of the demand for your type of business will help you identify likely buyers.
Is The Seller Ready?
That’s a big question that is often left unasked.
The seller has to have something planned for life after their exit. In our experience, most business owners are “doers” and doers have to have something to do. Without a plan for life after selling their business, they run the risk of unhappiness and even depression in the short term. This happened to me when I sold my business in the mid-’90s without having a plan for my post-closing life.
Now, my business was not for sale at the time but the buyers were insistent and demonstrated that insistence with their checkbook. But still, though I had some dough, I had no reason to get up in the morning. It was a rather disconcerting few weeks.
Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to accurately value and successfully sell businesses.
We posted more than once on this phenomenon and a business owner ignores this aspect at their peril.
The Bottom Line
All these issues are ones to think through as you consider selling your business. Understanding where you and your business are on each of these aspects will give you a better sense of whether “now” is the best time to sell.
- How does the business look financially? Make sure it’s as appealing as possible.
- Recognize that, though you know your industry inside and out, you don’t have that same level of knowledge in other professions. Get a talented team together to get the best information to enable you to make the best decision.
- Get a sense of market demand for your specific business type. Now is a great time to sell a growing dental practice or IT business. However, retail businesses might see better values once inflation retreats. The same can be said of real estate companies as it pertains to interest rates. Once rates drop, the real estate market will begin to pick up and real estate brokerages will see higher values.
- Finally, make sure you’re personally ready to exit your business. Selling a business is a complex decision and the deal can be an emotional minefield for the unprepared.
I’d like to hear from you. What topics would you like me to cover? How can we tailor these posts to be more useful to you and your business. Let me know in the comments box, below, or email me at jo*@Wo*******************.com.
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
NOTE TO READERS: Our “Searching For…” feature has been moved to our online community, The Brokers Roundtable℠. It will appear there exclusively from now on.
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 600 in the world. He can be reached at jo*@Wo*******************.com