Are there magical signs that point to selling your business?
Many entrepreneurs start their business because it is their dream to bring their product into the world, or introduce their service to an underserved niche, and other are building a brand to sell and set them up for their next venture or retirement. But how do you know when it is time to sell your business? Are there magical signs that present themselves? Do you wake up one day and the clouds part, traffic gets out of your way, everyone smiles at you and holds doors open? Nope. So how can you tell that your ducks are in a row?
FourBridges Capital advisor, Andy Stockett says there are some key signs that point to it being the best time to sell your business:
1. When Your Business is Humming
There’s a Merle Haggard song that goes, “Someday when things are good, I’m gonna leave you.” It’s probably not the healthiest mindset in a relationship, but it’s definitely the best way to think about the timing of a sale. Granted, business owners don’t always get to choose when a transaction takes place: if it’s a distressed situation or a personal emergency arises, the decision may be made for you. But assuming you’re in the driver’s seat, aim to go to market when your company is showing revenue and EBITDA increases. Why? You’ll be much more likely to maximize value and – most importantly – actually close a deal. Businesses that have gone flat, or worse, are trending downward, will have only a small universe of buyers. As a result, your ability to negotiate value and terms will be minimal.
2. When Your Management Team is Strong
Having gaps in your management team is akin to nailing a “buyer beware” sign over your business. Typically, buyers prefer to acquire a business that will continue to run smoothly post-transaction. If you’re hoping to sell your business and head to the beach condo, be sure you’re leaving behind a management team that can manage without you. Ultimately, that will get you more dollars in the bank.
3. When Things Are “Buttoned Up”
Potential buyers don’t want to deal with ongoing lawsuits or run-ins with the EPA. If possible, resolve these issues before trying to sell your business – and whatever you do, don’t try to bury them. Even if you come to terms with a suitor, the due diligence process won’t leave any stones unturned. If something pops up that the buyer wasn’t aware of and isn’t happy about, you can expect the whole transaction to come to a halt.
4. When Your Metrics Can Describe the Value in Your Business
Knowing your business is only half the battle. When you go to market, you need to be able to show it. Think:
- Monthly “management packages” that present detailed financials
- Operating statistics such as production runs, overtime hours, material waste and returns
- There’s no substitute for hard – and accurate – data. For one thing, buyers will appreciate having all of the information laid out for them. It can also shorten the list of questions your buyers will be asking and minimize the back-and-forth, moving the whole process along faster.
5. When Your Personal Financial “Playbook” is Ready to Go
There’s a lot to think about when you’re considering a sale. While you and your investment bankers will be focused on positioning your business properly, don’t neglect your personal financial circumstances. Make sure you’ve explored ways to minimize taxes and address estate planning issues, and establish a plan for investing the proceeds from the sale. Lining up a wealth management advisor and an estate attorney can help you protect and grow the assets you monetize through a transaction.
Stockett makes some extremely important points that many businesses miss as they put their brand on the market – it isn’t just about nailing your offering, there are many moving parts that need to be in line before the time to sell is before you. Not all entrepreneurs plan to sell, but sometimes the stars are aligned and the timing becomes appropriate.