How to Time the Sale of Your Business

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Timing the sale of a business can be a stressful process. In today's economy, it's nearly impossible to predict your business's financial future, let alone its value on the open market. But smart business owners also know that timing is everything. Selling either too early or too late can lead to a substantial amount of money being left on the table. So while you won't be able to control the economy, there are certain steps you can take to make sure the timing of your sale maximizes the selling price.

Being ready to sell when that time comes can lead to more interest from buyers, more offers and ultimately, a higher selling price. So whether you are looking to sell soon or farther down the line, here are some considerations on which you should focus.

Sell at Peak Value

Selling at "peak value" is, of course, easier said than done. Most business owners will find it hard to consider selling when things are going well, but that could be precisely the best time to get out. A growing, expanding, smoothly running business will be most likely to attract multiple buyers, creating an auction like atmosphere that will often lead to a high selling price. Too many owners wait until a major customer or key employee is already lost before trying to get out as well. Buyers will be aware of these types of situations and may use it against you in the negotiation process.

While that is the ideal situation, many business owners have been dealing with declining numbers for the past few years, giving them little leverage for a sale.

Even if you don't plan on selling for many years, the time to start building value is now. This includes everything from organizing your financials and improving the physical state of the building to training capable employees to manage the business in case of your departure. These preparations will prove especially important if an unforeseen personal or business crisis forces a quick sale.

Pick the Right Time

You should know better than anyone when your financial situation will look the best each year. A typical business sale takes 8-10 months. Plan that timeline into your strategy. As already mentioned, you want your business to appear as financially strong as possible. Make sure that you're hitting your busy season just as potential buyers will be checking details and beginning the negotiation process.

This may also fit with planning for transition to a new owner during a less busy or important time of year, when the new buyer will have time to learn the business without the potential to make costly mistakes at the outset.

Selling a business is something almost every owner will have to experience at some point. Whether you are planning to retire or to start another business venture, it's important not to rush into the sale process. Take your time to plan an exit and make sure your business is heading in the right direction come sale time. As they say, timing is everything.

Why Now is the Time to Prepare the Sale of Your Business

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According to many experts, the time to begin preparing to sell your business is now. The sheer volume of businesses that will appear on the market over the next several years means that buyers will be presented with more options and more purchasing opportunities. The owners who will receive top dollar for their companies are the ones who have invested the time and energy to make their business stand out in the crowd.

Sellers must intensely focus on building value by optimizing the key drivers of the business. It is critical to continue to grow the business even after the decision has been made to sell the business.

What Needs to be in Place to Sell a Business

To sell a business, owners need to see their company through the eyes of a prospective buyer. It is impossible to begin the process of preparing your business for sale and positioning it in the marketplace until you understand what buyers want in a business.

Like most investors, buyers of businesses are risk averse. They are looking for a sure thing – or at least a business that appears to be closer to a sure thing than the other businesses on the market. In addition to a fair price, business buyers are interested in companies that have proven track records, are easy to operate, and can be relied upon for profitability and future growth.

Keep in mind that (just like you); buyers want to earn enough profit to make a living from your company – immediately. If buyers are told that they will need to increase sales, reduce expenses or completely restructure the company to do so, their interest in your business will quickly wane.

At the same time, buyers are on the alert for red flags that could translate into problems after the sale. Much of the preparation process involves systematically removing these red flags in order to make your company as appealing as possible to the marketplace.

Starting right now, you can begin to address several obstacles that often present a challenge to a smooth selling experience – regardless of when you plan to put your business on the market.

Inadequate Financial Documentation

Financial records are one of the primary tools buyers rely on to assess the health and viability of a business. In many cases, they can also be a crucial part of the valuation process. In today's business market, computer based accounting systems are the norm. If you haven't done so already, start transitioning your books to an electronic recordkeeping system and contract for an outside review of your company's financials with an established accounting firm.

Lack of Adequate Cash Flow

Not surprisingly, cash flow is another key factor for buyers. For most small business owners, cash flow is the number one measure that determines if a business can meet their lifestyle needs. A company that is incapable of demonstrating a plan for continuing profitability and cash flow quickly loses its luster in the eyes of the marketplace – even if your business has a history of healthy bottom lines.

Be prepared to offer buyers a trend of profitability and cash flow improvement as well as solid reasons why you expect that trend to continue for the next several years. If your company is currently not performing in the black, make hard decisions and do what needs to be done in order to return the business to profitability as soon as possible. 

Staffing Problems

Many business owners enjoy a special relationship with their employees. Buyers, however, are less concerned about your relationship with your employees and more concerned about your staff's ability to function at the highest levels, especially after you've moved on. Like it or not, concerns for your employees will ultimately need to take a back seat to the selling process itself.

If your workforce needs to be resized or reallocated, do it now and create a professional staff that will be a selling point for buyers. In addition, make sure you have a continuity plan in place that will ensure that key employees can be retained to help run the business for the new owner.

Lease Issues

Time and time again, I have seen lease issues bring an otherwise smooth sale to a grinding halt. With some exceptions, buyers envision themselves operating your business at its current location well into the foreseeable future. If the lease is scheduled to expire in a year or two, the new owner could renegotiate a longer lease with the landlord after the sale.

But without any guarantees, a lot of buyers will hesitate or focus their attention on businesses with more secure space. To prevent this scenario from unraveling, proactively address lease issues now by negotiating with your landlord to secure an option to extend the lease with favorable terms for the buyer.

Although the process of preparing your business for sale may seem overwhelming, the preparation process can improve your company. The bottom line is simple. Regardless of when you plan to sell your business, now is the time to start preparing your business for sale. Your business' current performance will improve and you will position yourself to achieve your sale goals when your business ultimately hits the market.