Selling your Business?
If you are thinking about selling your business, you are not alone. According to the International Business Brokers Association, approximately 50 percent of all businesses in the United States will be changing hands in the next decade. For most business owners, their business represents the majority of their net worth, and in consideration of such an important decision, here are some frequently asked questions that address the decision whether or not to sell.
Q. What are the most common reasons why owners sell their businesses?
A. Burn-out, health issues, personal diversification, retirement/semi-retirement, death, divorce/partner disputes, business growing too fast, children not prepared or having no interest in running it, and loss of market share.
Q. When should I start planning for the sale of my business?
A. You should start planning for the sale of your business from the very beginning. Before you make the decision to sell, you need to ask yourself several questions. First, how motivated are you to sell? Selling a business can take a year or more. Second, have you adequately prepared your business to be sold? Most experts agree that owners should plan for the sale of their business at least three years in advance.
Even if you have no current plans to sell, managing your business as if it will be sold is likely to result in a more efficient and financially viable business. For example, your business plan should at a minimum evaluate growth opportunities and business goals, and should explain how progress in reaching those goals will be measured. Not only is your business plan an important tool in unlocking the current value of your company, it also serves as an initial prospectus for prospective buyers.
Q. When is the best time to sell my business?
A. In a perfect world, business owners sell their companies when banks are anxious to lend, the economy is strong, their industry is booming, and the business is enjoying record profitability, with the future looking even brighter. Naturally, all of these variables coming together at the same time would enable you to maximize the value of your business – allowing you to sell at the highest price and on the best terms.
But most business owners don’t sell when market conditions are perfect. Instead, they often make the decision to sell for more personal reasons, such as wanting to retire or to free up cash to pursue other opportunities. In more extreme cases, the business is sold when the owner dies or is otherwise unable to run the business. These unplanned events increase the chance that the business will realize a lower selling price than it would in better circumstances.
One of the most important things you can do is keep an eye on economic cycles and how they affect the business market. Economic recessions, for example generally mean that there are fewer qualified buyers and can also result in a drop of your business’ profitability, which can lead to a perception among buyers that your business is a risky acquisitions. You should also be aware of your business’ growth cycle and plan to sell when sales growth has reached a peak.
In conclusion, selling your business can be a time consuming and complex process, but you are likely to maximize your selling price by planning the event well in advance and by engaging qualified advisors to assist you. While a deal can be put together quickly, maximizing value means that selling your business may take some time. Remember, you don’t want to feel pressured to take the first offer, or to accept terms that are less than favorable.