When to Sell Your Business

Too often, business owners envision selling the business someday in order to have time for their retirement and/or grandkids. This article will change that vision. I recently attended a conference in Dallas where our office became certified to handle "middle market" merger and acquisition transactions ($5 million - $500 million). Among the many great takeaways from this conference was this: Sell your business when it's ready to be sold (not necessarily when you personally are ready).

This is a big shift in how business transfers have historically happened -- and it's not intuitive, so let's talk about it: Your business has a life cycle independent of your own. It has its own start-up phase, growth trajectory, maturity period, and eventually a decline and death. This likely will not coincide with your own life cycle, and yet so many business owners are so focused on their own retirement plans that they tend to miss the optimal time to sell their business: Toward the top of the growth trajectory before maturation begins.

Your business will have many, many ups and downs over its lifespan; you just don't want to be forced to sell when it's down because you were waiting to turn a certain age or feel a certain way. Put yourself in a buyer's shoes for a minute -- when would you want to take over a company? Certainly not when it's trending downward. Business buyers don't buy fixer-uppers. They buy cash flow. A buyer is going to have their own ideas about how to extend the growth phase of a business, but it needs to be firing on all cylinders in an expanding industry for them to take the risk of paying you top dollar for the chance to ride that growth phase. You should sell when your industry is hot, the possibilities are infinite, your business is trending up, and the earnings potential is strongest...if you want to maximize the proceeds of your sale.

Contrast that against the owner who hopes that the business will be at a peak right when they are ready to retire. The right place strategically might have been 10 years ago, but the owner wasn't ready to sell then -- they were still having fun and enjoying the ride. But now that they're personally ready to slow down a bit, the industry has taken a different turn, the sales are trending downward, and finding a buyer will be much more difficult. It CAN be done, but it's not the way to bet and the seller who waits too long will not get what they want at the negotiating table.

So what is a business owner to do? Pay attention to industry trends and the life cycle of your business -- or if you can't, then hire a business consultant who can conduct a market analysis and healthy business audit. When you realize the time is right to sell it -- work with a business broker to find the right buyer who will pay you what it's worth. And if you're not quite ready to fish, golf, or travel then buy another business in another industry and keep going!