When is it the “right” time to sell your business? Obviously the perfect time to sell is when profits are at their peak, sales are growing, the economy is strong, and there is a huge pool of prospective buyers looking for businesses. So if it’s not the perfect time to sell; can it still be the right time?
Earnings drive value. The market value of your business closely follows both the financial performance and bottom line. So if sales and earnings are up it isn’t hard to deduce that your business value has increased, and likewise if sales are earnings are down, the converse holds true that the value of your business has gone down.
When to sell, when not to sell, and when to sell anyway…
As I’ve said, if your profits and sales are performing well, it is a great time to sell your business, but what if your bottom line and sales have suffered as a result of the economy? If your company’s financial performance has suffered as a result of the economy it still may be the right time to sell your business.
If you are still fully committed to the business, prepared to stick it out and turn the business around, then you are likely better off waiting until the financial performance of your company improves. Keep in mind that this may take several years, and more importantly, you will have to produce two or three consecutive years of solid financial performance in order to realize the maximum value. Therefore you may have to commit to a three to five year turn-around plan.
If you aren’t fully committed to the business and prepared to turn it around, it may be time to sell anyway. If you decide to wait and your sales and profits continue to slide, the value of your business does the same. Deciding to wait for things to improve may seem like a safe move, but it is actually very risky.
When profits are strong the decision to sell is much easier, you only need to ask “Am I still having fun or do I want to move on?” When the financial performance of the business has declined and is weak, your decision is much more difficult. While you know it is not the perfect time to sell from a financial standpoint, it still may be the right time to sell depending upon your personal situation and commitment to the business.
Bottom line:
If your profits as well as the outlook for your business are strong you have many options, you can sell now or wait a while. In this situation you can base your decision on your personal situation – “Am I still having fun, do I still enjoy the business, would I rather be doing something else?”
If your profits and financial performance have suffered as a result of the economy your choices are more limited and you need to take action now.
You should stick it out if:
- You are fully committed to the business;
- You are certain that you can turn it around;
- You are willing to keep the business for another 3 to five years.
You should sell any way if:
- You are not fully committed to the business and willing to do what it takes to turn it around;
- You aren’t that sure you can turn it around and the risk of successfully doing this is high;
- If you are not prepared to for work at least another three to five years (long enough to turn it around and produce at least two to three years of solid financial performance).
The decision to sell your business is a very important one. Make sure that you seek professional advice so you can make an informed and wise decision. Contact your local VR intermediary to discuss the market value of your business, determine if it is the right time to sell, and develop an exit strategy.
For more information on perparing to sell your business see our webpage on
Preparing to Sell