When Is It Time to Sell Your Business? Part 3

how to sell your business

Do these reasons indicate the best time to sell your business?

Industry Overview

To know the future of an industry, it helps if you have a genie in a bottle to tell you the answers. If the industry is heading in a bad direction, it is time to evaluate the options though it would be unwise to suggest that every time an industry dips or change occurs an owner should think about selling.

But it’s amazing how rare it is for successful business owners to keep up with their own industry. A common response is “I can’t do anything about it, so why worry?” The more aware an owner is of upcoming changes in his industry, the more prepared he will be to look at his options. The most successful sellers we have represented were usually the best informed regarding their industry and economic setting. Informed sellers regularly attend local industry conventions and read trade publications, etc. These owners can talk on an informed basis about both economic and industry trends and make it procedural to understand quarterly changes in their income statements and balance sheets. The more informed you are, the better prepared you are to sell.

Employee stability

Employees are most company’s key assets, so make sure to have a solid team in place before you begin marketing your business.  Once you lose a key person or operations manager you will start raising eyebrows during marketing. Employees will not always be with you, so the best time to sell your business is when key positions have been stable. Nothing scares off a potential buyer faster than a key employee’s recent departure.

Cash Flow

It might not be an overstatement to say that in buying and selling small businesses, “Cash flow is everything.” When cash flow is not “everything” is when the assets are the only value of the company or if a competitor is just looking at your customer base.  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 will need to get to the heart of the problem and get the problem handled.

When reviewing a business, prospective buyers and lenders key in on even the slightest slip in annual revenue or cash flow. Even an annual dip as small as 2% will cause a buyer or lender to wonder if there are significant problems in the business. We have sold businesses with a drop in cash flow for two and three consecutive years, but the final sale price negotiated suffered as a result.

Is it your time to sell?

From the book, Swinging Doors, A Guide to Selling Your Business, by Chad Peterson


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