When to Sell Your Business

When to Sell Your Business

“Someone’s sitting in the shade today because someone planted a tree a long time ago” Warren Buffet

Entrepreneurs all face a point in their business’s evolution where they question whether they should sell their business.  For some, the decision to sell comes in year one, others struggle mightily to sell after 25 years, while others pass the company onto future generations.

The decision to sell is often a result of rapid growth and the inability of entrepreneurs to scale their business at the pace that customers demand.   A lack of available capital, human resources, and time, push many owners to either sell to a competitor[1]  or other industry player or to partner with a private equity fund[2] to assist in the future growth of their business.

Inversely, the decision can be made in a moment of weakness, as the business struggles in a tough market environment.   Personal guarantees and sleepless nights drive many entrepreneurs to want to pursue the sale of their business. Partnership issues, divorce, and financial constraints can all accelerate the decision to sell.

From a market perspective, there are always optimal times to sell, but those are not known without the benefit of hindsight. Like buying or selling a stock, timing is always tricky and there is inevitably always a twinge of regret (“If I held out a bit longer, I could have gotten more”, “Had I sold last December when I still had Customer ABC, I would have really maximized my value”).

A strong advisor should help you evaluate the pros and cons of your specific situation and keep you up to speed on what is happening with buyers, competitors and the broader economic environment which are all key considerations when evaluating the chances of attracting fair bids.  There are certainly better and worse times within a calendar year to market a business – for example, we seldom suggest launching a process in December when everyone is gearing up for the holiday season or in mid July when it’s the height of summer vacation, but even those guideposts are flexible.

Our objective with this blog is to help you, the entrepreneur, prepare your business so that it is always ready (or near ready) for sale, so that when either personal circumstances dictate or a market opportunity presents itself, you are as ready as possible.

We would love to hear your story – please feel free to contact us anytime (we are good with evenings and weekend chats).

[1] Jargon Alert: Competitors or other companies that are operating in a given industry in some form or fashion are often referred to as “Strategic Buyers” as they are seen as buying the company as a way to grow their business or as a way to fortify their position in the market.

[2] Jargon Alert: Private Equity Funds are just what the name implies, they are funds consisting of private capital that have a team that look to make investments in operating companies with the aim of generating returns through improving the company’s profitability through a combination of operational improvements (margin gains), by expanding their market reach (growth), and in some cases, by adding more debt to the company’s balance sheet (thus the term “leveraged buy-out”).