When is the Best Time to Sell a Business?
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You’ve spent years building your business and now you’re finally thinking about selling it.
But, when exactly is the best time to sell?
To be frank, you’ll never know when the best time is to sell. Instead, you should be searching for a good time to sell.
Of course, the answer to this question will vary depending on the specific circumstances of you and your business.
However, we can still examine some general guidelines and thought processes that you can apply to your own situation and discover a good time to sell.
This guide will detail the key considerations that you can apply to your own business, its market, and your particular circumstances.
First, we’ll look at some criteria to determine whether or not your business itself is ready to sell. Then, we’ll dive into signals related to industry and market atmospherics which can either give you the green light — or throw up a red flag. Importantly though, you must realize that there is no one single factor that will tell you it’s time to sell. As you’ll see, there are several factors working in unison which can indicate a good time to sell.
Is your business ready to sell?
The first thing you need to evaluate is whether or not your business is ready to sell.
Here, a good time to sell is when your company has a consistent history of growth, with a relatively large growth trend in the recent year. Keep in mind that precisely what determines a ‘large growth trend’ will vary by industry. What never varies however, is the fact that growth is a key component buyers will look for.
You need to be able to objectively demonstrate recent growth to potential buyers. By doing this, you’ll be able to defend the price you seek when your business enters the market.
Regardless of your particular situation, it’s always a good idea to invest in some marketing efforts to polish up your recent growth trend.
Once you’ve confirmed you can show some growth, you need to establish how much you’ll be able to sell your business for, to see if that aligns with your personal goals (which is covered a little later).
Significant growth can be an even stronger indication of a good time to sell. According to Pamela Wasley, CEO of Cerius Executives,
When your business has grown substantially, it might be time to consider selling it. Running a business is risky, and the bigger you get, the bigger the risks you have to face. The value of your business is not liquid until you go through the transaction of selling your company.
Demonstrating growth and using your business’ growth as an indication of value will require some preparation. Deciphering how much you think your business is worth — based on the effort, sacrifice, and time you’ve put into it — is often times different from the objective price a buyer is willing to pay.
Frequently, small business owners will turn to business brokers or investment bankers for a valuation. Having this type of unbiased, third-party valuation will also make your asking price much easier to defend during negotiations with potential buyers.
Can the current market facilitate the sale of your business?
Certain market factors will always affect business sales. Sometimes these factors will be beneficial to you as a seller, and sometimes they won’t.
In general, take a look at two key questions to get a better idea of how market forces can impact your sale:
- Are there a number of businesses in your industry (similar to yours in both size and operation) which were either sold or acquired in the recent past?
- Were smaller businesses acquired by larger companies?
Reviewing the history of business sales — similar to yours — over the last few years is beneficial for a number of reasons.
First, it can give you an idea of what you could get for your business. In one aspect, this can be very valuable as it shows how much buyers have actually paid when it comes to comparable businesses. Keep in mind however, that this will only be a general idea. You will lack knowledge concerning the private details, which are frequently both the foundation and structure of a deal altogether.
Yet, at the same time, these trends can help identify valuable insight. For instance, if you operate a startup, identifying the number of acquisitions in your industry could give you an indication of a good time to sell. If a high number of acquisitions exist, an exit could be appealing prior to the next surge of entrepreneurial innovation.
In general, there are a number of market factors which can provide a solid indication of a good time to sell:
- a high volume of comparable business sales in your industry
- an upward trend of sale prices
- an upward trend of strategic acquisitions
- relatively low taxes
- interest rates that are lower compared to years past
- an economy that shows signs of strength and growth
- affordable debt financing
According to Fit Small Business, a thriving industry is a clear indication of a good time to sell:
If your business’ industry is thriving, it’s a good time to sell your business and move on to your next project. A business in a thriving industry will likely sell more than if your business’ industry is struggling. You can take this opportunity to liquidate your business while there are more customers interested in buying it at a good price. It’s important to pay attention to industry trends, as it will benefit you when you decide to sell.
It may feel counterintuitive to sell when things are going well, but that is precisely the right time to sell. Most buyers look to acquire a business that is on an upward trajectory, so you’ll have more interest and likely will be able to sell more quickly.
Another important note: don’t be discouraged because of a poor economy. This especially applies to businesses looking for strategic acquisitions. Sure, when the economy is booming, acquirers will have the extra funds to invest in smaller businesses in a riskier fashion. But when times are tough, their own profits may be under pressure, which can drive them to look for external growth through acquisitions.
Are you personally prepared to sell your business?
There are two sides to this coin — and both are frequently looked past until it’s too late.
The first part is a bit more obvious: finances. Do you have the financial security to advance to the next stage of your life?
The precise content of each answer will vary based on every seller’s individual circumstances and priorities. That’s why it’s a good idea to go over your future goals and understand the financial needs required to fulfill them. Even an exercise as simple as writing them down can help. Remember that this typically won’t involve your individual needs alone, but your family’s needs as well.
According to John Brown, Founder of the Business Enterprise Institute,
One good reason to sell your business is if you have achieved a certain level of financial security from running the business and you want to step down and start a more laid-back lifestyle. You don’t need to fully retire to do this. Perhaps you just want to start a less demanding business or just own a franchise that doesn’t require much of your time.
If the thought of this type of preparation feels a bit overwhelming, consider speaking to a financial advisor for help.
The second aspect of your preparation is a little different.
You might be very attached to your business, maybe even more than you think. You grew this business from the ground up, and likely invested a significant portion of your life into its success.
The big question here is this: are you ready to walk away from your business, without looking back?
For lifetime entrepreneurs, answering this question will be easy. They’ll be ready for the next challenge, which they’ve likely already had their eyes on for quite some time: the next business to build, grow, and sell.
For others however, this aspect might not be as easy to handle.
If your business has been a lifelong endeavor, you might be unsure about what to do next.
This could take an honest, personal assessment to analyze what drives you, and how you can continue to satisfy that drive through other means. This ought to be established before a business transaction takes place.
All in all, understanding yourself and your motivation can ultimately save you from a major obstacle some business owners experience: burnout.
If you feel burnt out when it comes to running your business, the consequences can be brutal. Burnout often leads to an anxious, immediate ‘need’ to sell a business, which— when all is said and done— results in a premature sale at a less than favorable price.
Know the signs of burnout and don’t let it affect the proper compensation of everything you’ve put into growing your business.
Closing thoughts: Look for a good time, not the perfect time
In the end, there is no perfect time to sell. Even if there was, you would never know this time until it had already passed, rendering it impossible to spot beforehand. All you can identify are good times to sell. Importantly, most owners will look for one overarching sign— above all others— directing them to sell. This is not a recommended approach. What you need to identify is rather a harmony of the three main factors we’ve discussed: 1) your business being ready to sell, 2) market forces which can support the successful sale of your business, and 3) being personally prepared to sell your business.
In the end, most business owners don’t complete the sale of their business on their own. Think about it: you’re an expert at building and operating a business. You’re not an expert at selling them. Selling a business is often times a complicated, unfamiliar, and daunting task. That’s why turning to a business broker or investment banker can yield significant benefits. They’ll help you maximize the sale of your business, allowing you to receive a fair-priced paycheck at the end of the day — and sleep peacefully at night.
Further reading: Confused about how the many different tax structures can affect the sale of your business? Check out our tax guide for a comprehensive overview.