When Is the Best Time to Sell a Business? Recognizing Your Window

By TJ Bunday | Brooks Pointe Corporation

When is the best time to sell a business?
Most business owners answer that question based on their own timeline.

I’ll sell when I’m ready to retire.

I’ll sell when my children decide they don’t want the business.

I’ll sell after one more good year.

I’ll sell when I’m simply ready to do something else.

But the best time to sell a business may have as much to do with the performance of the company and conditions in the acquisition market as it does with the owner’s personal timeline.

Will you recognize the right selling window when it arrives?

Every Business Has a Life Cycle

Building a company that survives for decades is an accomplishment in itself.

U.S. Bureau of Labor Statistics data shows how difficult long-term business survival can be. Among private-sector establishments started in March 2013, only 34.7% were still operating ten years later.

That makes every year of successful operation meaningful.

But surviving and being positioned for an attractive ownership transition are two different things.

During the life of a successful company, performance rarely moves in a perfectly straight line. Businesses experience periods of growth, stability, investment, contraction, expansion, leadership change, and renewed momentum.

There may be periods characterized by:

• Rapid revenue growth
• Expanding margins
• Strong recurring revenue
• Improved management depth
• Reduced dependence on the owner
• Major customer wins
• Industry consolidation
• Favorable financing conditions
• Increased buyer demand
• Strong acquisition activity within the industry

There can also be periods when some of those conditions move in the opposite direction.

That is why business owners may benefit from thinking differently about the timing of a future sale.

Your Business May Have More Than One Opportunity to Sell

Consider an owner who operates a successful business for 20 or 30 years.

During that time, the company may experience several periods when its financial performance, management structure, industry conditions, financing environment, and buyer demand are particularly favorable.

Maybe earnings have increased for three consecutive years.

Maybe the management team has reached the point where the company is no longer heavily dependent upon the owner.

Maybe acquisition activity within the industry has increased.

Perhaps lenders are actively financing businesses in the company’s size range.

Or a strategic buyer may be willing to pay for capabilities, customers, geography, personnel, or market share that took years to develop.

None of these conditions automatically mean an owner should sell.

They do mean that a window may have opened.

How important would recognizing that window be to you?

Why Waiting Until You Are Ready to Sell Can Be Costly

Many owners do not begin thinking seriously about selling until something changes personally.

• Retirement
• Burnout
• Health concerns
• Family circumstances
• Partner disagreements
• An unsolicited offer
• A desire to pursue another opportunity

The challenge is that by the time an owner needs to sell, the luxury of choosing the timing may already be disappearing.

A business may still be performing well, but the owner may no longer have the time or energy to address issues that buyers or lenders discover.

Preparing earlier creates options.

Preparing a Business for Sale Before You Need To

Preparing does not mean committing to a transaction.

It means understanding the business from the perspective of someone who may eventually acquire it.

That conversation should include:

• Earnings trends
• Cash flow
• Customer concentration
• Management depth
• Owner dependency
• Recurring revenue
• Operational systems
• Working capital
• Industry conditions
• Financing environment
• Buyer activity
• Acquisition trends
• Ownership objectives

Look at Your Business the Way a Buyer Would

Imagine having a conversation every year about your company from the perspective of the acquisition market.

Instead of asking:

Are you ready to sell?

We ask:

If you wanted to sell, how would the market view your business today?

That leads to a much more productive discussion.

HOLD

Business performance and market conditions suggest continued ownership may make sense.

BUILD

There are identifiable opportunities to strengthen the business, improve performance, or increase transferability.

PREPARE

Conditions are developing that justify preparing the company for a possible transaction.

SELL

Business performance, buyer demand, market conditions, and ownership objectives may be aligning.

The Right Time to Sell Is Different for Every Owner

This approach is not limited to owners approaching retirement.

Owner-Operators

Owner-operators may want to strengthen the business while gradually reducing the company’s dependence upon their daily involvement.

Serial Entrepreneurs

Serial entrepreneurs may want to recognize an attractive opportunity to convert equity into liquidity and redeploy that capital into another venture.

Absentee Owners

Absentee owners may be comparing continued distributions and long-term ownership against the opportunity to convert the business into liquidity.

Family Businesses

Family business owners may be considering a generational transfer, management transition, outside sale, or combination of those options.

Different owners have different objectives.

The important question remains the same.

How important is hitting the right market window to you?

The Relationship Should Begin Before the Transaction

At Brooks Pointe Corporation, we do not believe our first meaningful conversation with a business owner should occur when the owner is ready to put the company on the market.

We would rather know you years beforehand.

We want to understand the business you are building, your financial and personal objectives, the opportunities ahead, and where you ultimately want ownership to take you.

Our complimentary Broker’s Opinion of Value provides a starting point.

From there, Brooks Pointe can maintain an ongoing relationship as the company grows, help owners identify areas that deserve attention, discuss market positioning, monitor conditions surrounding the business, and be available when circumstances justify a more serious conversation about an ownership transition.

You may sell next year.

You may sell ten years from now.

You may ultimately decide not to sell at all.

That is okay.

The relationship should begin before the transaction does.

Thinking About Selling Your Business Someday? Start Today.

You do not need to be ready to sell to begin the conversation.

Start with a complimentary Broker’s Opinion of Value and establish where your business stands today.

From there, let’s build a relationship, follow the business as it develops, and recognize the opportunities that may emerge along the way.

Because you spent years building your business.

You should not have to guess when it is time to sell it.

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