A business owner can spend his entire career developing a business. It’s his baby, which can make selling it the most difficult decision he will make.
Timing is Everything
The timing and reason for selling must be right. But how do you know what those are? Here are some factors to think about:
If you have lost your passion for the business, hate going to the office and can’t wait to leave, then it’s probably time to consider selling. Burnout and boredom are the most common reasons for an owner to sell his business.
If you experience burnout, one of the worst things you can do is hold on and let cash flow gradually decline. When or if you do decide to sell, declining cash flow will have a negative effect on sale price.
Want to work until you are 65? Do you want to wait until 80? What if 65 or 80 don’t come around for you? What if you could retire at 45? People often have an age in mind for when they want to retire. But if you could sell your business and retire now, would you? There is no time like the present to go live instead of work, no matter what walk of life you trek.
Sometimes the health of the owner dictates the time to sell. Structuring a deal for a quick sale due to the owner’s health does not have to mean a lower price. A seller can set up a low down payment and owner financing for a longer period to keep the sale price at the highest justifiable level, while still getting the owner out quickly.
A business doesn’t run in a vacuum. External forces not only affect the growth of a business, but also its marketability. An ideal scenario to sell is when there is a strong economic environment of low-interest rates, a growing stock market, a strong dollar, low inflation, low taxes, and a solid availability of capital.
It is always a good idea to keep up with economic trends. While a bad economic setting does not help, a good, profitable business will sell in good or bad economic conditions.
It’s surprising how often business owners don’t keep up with their industry. The more aware an owner is of upcoming changes in his industry, the more prepared he can be. The more informed you are, the better prepared you are to sell.
It might not be an overstatement to say that in buying and selling small businesses, “Cash flow is everything.” If cash flow has started to slide and you are thinking about selling, there is serious work to do. A Band-Aid will not work. You need to get to the heart of the problem and get it handled.
Prospective buyers and lenders key in on even the slightest slip in annual revenue or cash flow and wonder if there are problems in the business.
Businesses with a drop in cash flow for two or three consecutive years can sell, but the final sale price will suffer as a result. The optimal time to sell is when the business is performing at its best.