When is the best time to sell a Business
While the title of this article, “When is the best time to sell a business? Now” may sound self-serving for a business broker, selling businesses is how we make our money. There is an underlying logic to this heading that is hard to refute. It depends on perspective.
Let us place ourselves into the perspective of a business owner who is contemplating this question. The business owner has reached a point where he or she believes they are ready to let go of the business. Probably because it has reached a valuation that meets financial planning needs. They have also reached a point where they believe the business will invite demand from buyers.
This is the point where a business owner and potential seller will speak to a business broker. They inevitably ask “is this a good time to sell” or “How is the market for business sales at the moment”.
Possible Financial Planning Needs
The possible financial planning needs of the seller can vary. A business is an active asset and requires the continued attention of the seller to help ensure its ongoing viability. If that attention is no longer available, then it can be imperative to sell the business before it loses value, or, the same thing, loses profits.
A business is just as good at leveraging losses as it is at leveraging profits. If something happens that leaves your business haemorrhaging money, a business broker’s job may be to save what’s left before it goes to a liquidator. This may happen because of changes in the market in which the business operates, but more often it happens because something has happened to the owner.
Many business brokers have saved marriages and houses by getting the business owner out of a severe loss-making situation by selling a business. There is a race to do it before those losses destroy the equity in their personal balance sheets.
A much better financial planning need is one where the business owner has operated the business well for a lengthy period. The sale of the business would tip them into a situation where they can retire to a more leisurely life or free up resources to pursue their next life goal. These situations are far less stressful and also provide a broker with an important ingredient to get the best possible outcome. Time.
If a business owner is considering selling a business, it is likely that the business cycle is sympathetic to the sale.
The Business Cycle
The business cycle is a term used by economists when they discuss the state, healthy or otherwise, of an economy. It differs from the seasonal cycle, which is characterised by a regular rhythm.
An example of a seasonal cycle would be the increase in consumption expenditure that occurs around Christmas. This is when households are embarking on their annual spending spree. Another regular seasonal event is the end of the financial year, which spurs other predictable activities.
The trick with the business cycle is that it is very difficult to pick their turning point, the point where sentiment and fundamentals change. Examples of this are the impossibility of picking the global financial crises that occurred in 2008 or the Covid pandemic of 2020.
Imagine being in a position where in early 2008 you planned to sell your business in 2009, or in 2019 you were holding off until 2020. The global financial crisis and the Covid pandemic would have destroyed all those plans.
Business Sales in Times of Downturns
My memory of selling a business in 2009 is of the loss of value that occurred because of a precipitous drop in profit. Many were in no position to be transacted. This also happened in early 2020, which saw me in a position of negotiating the sale of several businesses only to see this all crash in short order.
Even our highest-paid economists failed to forecast the path that interest rates would take. The head of the Reserve Bank suggested in 2022 that interest rates would stay low until 2024.
The Lesson about Timing
The lesson from this is clear. If you are considering selling your business, don’t let the perfect be the enemy of the good. Do what you can with what you have. Often, the most important thing to have on your side is the state of the business cycle. Not completed financials to the end of the year or a new lease for your property or a myriad of other things. These just impede prosecuting your decision to sell.
Not that no attention needs to be put into preparing your business for sale, but the best way to secure the sale of your business is for it to be a well-running business. If that is what you have now, make the most of the opportunity.
If you are having difficulty with your business, you should not delay in getting the right advice. We have connections with important and skilled ancillary service providers. They may help address the haemorrhaging of a failing business and stabilise the situation to allow us to find a buyer.
Your Best Choice in Business Brokers
I have written many articles about selling a business and specifically business broking. Take this opportunity to read at least one of them. This one is titled “Why Bother with a Business Broker“.
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