When it comes to selling your business, timing truly is everything. That’s why its good to know what factors can influence timing and the top three (3) considerations in play.
Most owners who attempt to sell will fail 70-80% of the time. Do buyers get cold feet, sure. But in reality, most deals fail because the Seller’s expectations aren’t met.
That’s why it’s important we have a better understanding of the factors that will influence the timing of a successful transition.
Let’s go.
Overall Trends
There are three factors to consider when you want to sell your business:
Owner’s energy
Financial performance
Mergers and acquisitions (M&A) industry
The first deals with the emotional ties we all have to our business and the amount of interest and energy we have put into it.
The second tends to be correlated with the first – the more profit a business owner sees the more excited they are about keeping the good times going.
The overall M&A market and how it’s connected to the economy. Anytime there is any fear or uncertainty in the economy it tends to make some investors more reluctant to part with their hard earned cash.
But when it comes to selling a business, timing is truly everything.
So when is the best time to sell a business?
Owner’s Energy
When it comes to the typical progression of a business, energy can flow both ways. If things are going well the energy is positive, we’re excited and optimistic about the future. When things are tough (like now) our energy tends to go sideways and our passion for the business starts to fade.
But interesting enough, no matter what is going on out there – eventually your level of interest and excitement will flatten off – it’s just a question of when.
For the older generation, selling is often linked to a retirement plan or winding back from the grind. Other times it may simply be a change in interests or boredom that starts to counteract the excitement.
When should you sell?
If you’re selling you want to do it when your energy is still positive and the business is still marking a decent profit but you can foresee that eventually your run will come to an end. It could be changes in the industry, a radical new technology or bigger competitor moving in on you. Whatever it is, you need to sell before those future things start to show up in your business.
Financial Performance
Every business goes through the same life cycle of startup, growth, maturity then rebirth or decline.
When should you sell?
The number one mistake sellers make is keeping their business for too long. Growth levels off, then they decide to sell.
What you want to do instead is sell it when you’re still growing. Why? Because growth and earnings are the fundamental drivers of value. So if you have a tailwind behind you, you’re in prime position to maximize your sale price.
If you want to time it out perfectly, sell your business just before you get to the top of this growth curve, leaving some ceiling space for the buyer to capture after the ownership changes hands. The transaction will make sense for everyone.
M&A Industry
A seller’s need or motivation to sell their business can never be graphed and financial performance will always vary. But we can see the M&A industry cycle up or down, like a boom and bust cycle in the economy.
Back around 2018 to 2019, this was the first M&A upcycle where online businesses were mature enough to participate in mergers and acquisitions. Now in 2024, we’re on a downward trajectory and exit multiples will be impacted as more risk enters the economy.
But even with that being said you would think increased inflation and interest rates, the M&A market would be taking a beating, but that is far from the case. Even though we see geopolitical instability, spiking inflation, supply chain issues, see-sawing capital markets, regulatory changes etc etc. It hasn’t shown up in a lot of people’s businesses just yet. Trading performance has rebounded to pre-pandemic levels, demand is back and companies across many industries are even struggling to keep up with it all.
When should you sell?
The best time for a seller to list their company for sale is just before the curve is at its peak. This is when M&A markets run hot and valuations are up. You want to prepare your business sale, implement growth initiatives and talk to buyers about the future potential of the business before you reach the top of the chart. Regardless of the size of your company, you need at least 12 months to do this effectively.
When the M&A market is hot, that’s when deals close more easily, buyers can access finance and they can pay higher premiums. When the M&A market is on a downturn, this is where deals get tough to close. Not impossible but the odds are against you. Which presents a massive risk to you as a seller, as you will face some tough choices.
Take the offer off the market and go back to running the business
OR
Let the business go - for an eye watering discount
That’s why selling a business is best done during periods of economic expansion. When confidence is strong, the prospect of future earnings for the buyer is more predictable and financing can be approved.
Regardless of Timing, You Need to Get the Exit Process Right
Remember, as a seller you can’t rest on your past performance alone, or rely on the current M&A market to push your valuation higher. Most of the time, creating value will come down to whether you have the energy and motivation to make things happen. That’s up to you.
But if your energy is low, so too is your ability to make a life changing transaction actually work.
It really doesn’t matter how things are going, you will find a way (consciously or subconsciously) to sabotage your own stake in the outcome (exit).
That’s why it helps to create a more structured pathway. One with built in contingencies and fail safes, should things not go to plan. You can then assess whether the timing is on or off and make the right call.
With the majority of business sales falling over, even at the last hurdle, its important owners invest the time and energy into a transition plan that is actually going to work for them. It’s not always about selling to someone else, it’s about creating a powerful set of OPTIONS and selling at the right time, to the right person. That’s how you will maximize value.
Thinking of selling your business?
In just 30 min will value your business and identify some ideal buyers.