When is the Right Time to Sell Your Business? The 3 Determining Factors

Having started and sold six businesses for profit, I often get asked, “Justin, how will I know when is the right time to sell your business? Is it really possible to know?” Looking at our current economic landscape, you may find the thought of selling your business a little discouraging. However, determining whether the time is right to sell isn’t so cut and dry. It needs to be broken down into a couple of different areas helping you find your perfect time.

Personal Factors’ Effect on Selling Your Business

The first thing to consider is personal timing. How’s your energy level? As an owner, are you struggling to keep up mentally, physically and emotionally? If that’s you, then now is probably not the best time to sell your business.

Waiting until you're weary and completely zapped of energy only benefits the buyer. As an owner, you want to make a move when you can still drive up the hill; never while you’re coasting down the hill. If a prospective buyer sees someone pushing the business and driving it to a maximum value, his enthusiasm to pay more will show.

The age of the owner is also a big deal in these situations. So, an octogenarian (no offense to the 80-year-olds) doesn’t seem to have the energy to bring value to the company. A buyer may think they aren’t going to be around much longer, so why not just "wait it out." On the other hand, if you've got somebody in their thirties or forties with cutting edge technology, the buyer will see a great deal of value in the future prospects of your business.

However, age isn't the only factor. The health of the owner can also play a role as well. If your health is starting to decline, then so is the value of the business.

Another thing to consider is, how much involved are you? If the business runs correctly, there aren’t many hiccups when you aren't there. However, if your hands have to be in every aspect of the business, in order to keep it running smoothly, then you've got an issue.

Still yet, you must also think about whether you are willing to stay on to help the business through the transition. If not, it may not seem as enticing to the buyer.

So when it comes to personal timing, you must have an energy level that’s absolutely through the roof. You need to be on the younger side of the business lifecycle, personally involved in the business, yet not having the business depend on your presence. You need to be in good health, ready to stay on for counsel and be passionate about the business’s continued growth.

You may be thinking, “Justin, you’re crazy! That sounds like the worst time to sell!” This is exactly why it’s is the perfect time to sell the business, if you want the most out of it.

Business Factors’ Effect on Selling Your Business

The next thing to look at is the business timing phase. Basically, where is the business at this point? Is it in the growth stage? If so, you’ll likely get a better return for a business on an upward trajectory than one in the formative stage or in a state of decline.

Another important aspect to note is how the business has fared from a historical standpoint. Many times, you can look at the particular industry of the business and see where it is at the macro level. For example, insurance companies can go through transformations based on demographics, or new legislation. So, when someone looks at it as a future prospect, they realize it's the type of business that has a waiting list of people to provide goods and services to. That is the type of business that is going to yield a higher value for the owner based on the future prospects of service than those that may not have as much.

Market Factors’ Effect on Selling Your Business

The last thing to consider is market timing. You must take matters like the strength of the economy, taxes, financing, etc. into account. In a strong economy, most times, you can get a better value. On the other hand, if you have a weak economy and several people are all trying to sell, you’ll end up with a depressed value. You should consider taxes too. If tax rates are really low, then it can increase value. On the other hand, really high tax rates often cause concern for sellers. 

You have to account for debt financing structures also. Is money cheap? Is it easy? Are interest rates low? The lower the cost of borrowing money, the more apt people are to subsidize a business.

So, to find the answer to the question, “When is the right time to sell your business," you must consider each of these factors. The problem is, you won’t know when all the factors are going to line up. Therefore, you must build the business to sell. Have the buyer in mind from the beginning, and make it as turn-key as possible. Then when the stars, the moon, the sun, and the entire galaxy align, SELL!