Knowing when to sell a business is complicated, but I’m going to boil down the right time to sell to two factors: When you’re ready to sell, and when your business is going to fetch the highest value on the market.
Ideally, both of those things are aligned, and you can sell your business for a ton of money and go retire to your tropical island of choice (if that’s your thing).
Here’s my advice: Don’t leave the alignment of your interests and market conditions to chance. This isn’t astrology; we don’t have to look to the stars to divine when we should sell. Focus and preparation will help you sell your business at the perfect time. I’m going to teach you how:
Key Takeaways
- Your readiness and market conditions are the two keys to selling your business.
- Interest rates, regulations, market trends, and more can affect the sale price of your business.
- Preparing years in advance can help you take advantage of those trends.
- Getting your business ready to sell can mean more money in your pocket and a faster sales process.
- Catchfire can help you sell your business for more.
Understanding Market Conditions
I’m not going to presume to tell you how to understand the exact market conditions in your industry - mostly because I don’t know who is reading this, so I cannot give you advice specific to your niche. What I can tell you is that market conditions play an important role in how much your business is going to sell for - and how quickly it’s going to sell.
That’s not surprising, but it does present a valuable insight when you consider how rapidly and how slowly market conditions can shift. Ideally, you’ll have a window of years in which you’re willing to sell your business so you can take advantage of market trends.
Evaluating Market Trends
As a successful business owner, you’re already evaluating market trends; you know if your industry is hot. Quantifying it through EBITDA multiples can help you understand if prospective buyers are willing to pay a premium, if demand is cooling, or if your industry is in a fallow period (at least when it comes to selling a business).
You’ll also want to consider broader trends affecting the entire market. These trends include
- Interest rates (lower is better)
- The amount of M & A activity in your sector
- Policy changes - ranging from capital gains tax changes to regulatory changes that affect your industry
These factors - and many others - can all affect the sale price of your business. This is why having a plan well before you’re ready to sell is crucial; you can wait for these factors to turn in your favour before selling.
Buyer Demand & Industry Cycles
Along with more general market trends, you want to think about your industry. Many industries may experience:
- Consolidation if the industry is fragmented
- An influx of interest when new technology is introduced
- Higher valuations when regulatory changes and other shifts allow for synergies through horizontal or vertical integration
- Interest in access to your market
You know your business better than I do (though if you call my team, we’ll try to get to know it as well as you do) - that means you have an idea how industry cycles and trends are going to affect the sale price of your business. If there’s something on the horizon that you think will increase the value of your business in a few years, start the process of selling now!
Personal Readiness: The Owner’s Role
Industry trends are one side of the coin; the other is your own willingness to sell. Many business owners hold on to their companies through several cycles of market growth and decline; the market being good doesn’t mean you want to sell your business.
You need to be ready to sell; that might be because you want to retire or because you want to move on to other ventures, but it has to be the right time for you. If you are not yet structured for tax efficiency on the sale of your business, that should be addressed at least two years prior to the sale of your business, to achieve the maximum benefits.
Here’s where things get tricky; you don’t want to sell when you’re totally fed up with running your business. You can often get a much better deal if you’re willing to work for months (or years) after selling in order to smooth the transition.
In other words, the best time to sell is a little bit before you’re actually tired of owning the business.
Looking to sell a business without stressing yourself out so much that you don’t want to work another day? Call Catchfire. The process won’t be completely stress-free, but with our team, you’ll have a lot less on your shoulders.
Business Readiness For Sale
Once you’re ready to sell your business, it’s time to get your business ready to be sold. We encourage people to do this before market trends are at their peak; the selling process can be pretty involved, and so is the process of preparing your business. Being prepared early means you can pounce when conditions are right!
We’ve already written a few articles on how to prepare your business to be sold, so I encourage you to give those a read. Here’s a breakdown of some of the things you may want to do:
- Prepare financial statements
- Review your business operations for weak points
- Reduce your liability (and the liability of potential buyers)
- Get your cash flow to debt ratio in order
- Diversify suppliers and customers
- Broaden employee talent and skills (to reduce reliance on key employees)
- Assemble a team of lawyers, accountants, and M&A experts (among others)
The business sale process is incredibly involved, from finding qualified buyers to keeping confidentiality - and that’s without even getting into the due diligence process. Getting your business ready well before it’s time to sell will help you get the most value!
Is your business ready to sell? Our ready-to-sell assessment will tell you if it is, and if it isn’t, what you can do to smooth over the sales process and make more money.
Timing Indicators: How To Know It's The Right Time
Here’s a quick summary of when it might be time to sell your business:
- You want to sell, but you’re willing to work for a few more months or years
- The industry multiplier for your business is above average
- Interest rates are low
- There’s a lot of buzz around your industry
- You’ve prepared your business for due diligence
- Your cash flow to debt and your revenue are excellent
- You’ve diversified your customer base, your suppliers, and your employees
How Catchfire Can Help You!
We’re not business brokers; we’re M&A specialists. A business broker will sell your business but we handle everything: Getting your business ready to sell, giving you advice on how to run your business effectively while you’re preparing for the sale, finding potential buyers, helping you read market trends, and giving you an in-depth understanding of all of the personal and financial considerations that can impact the sale of a business.
We negotiate. We write out Letters of Intent. We connect you with other professionals like accountants and lawyers. We use our network to find strategic buyers willing to pay a premium. We do it all anonymously, protecting your interests.
Those are just some of the many ways we can help you. Our M&A advisors in Winnipeg are ready to sell your business if you are. Call us today.