When you decide you’re in the market for selling a business, there are a lot of variables at play. Buyers are going to consider everything from the value of your business in the context of both the fine details of finances and the broader picture of global conditions. Here’s how you can time the sale perfectly by making smart decisions like hiring a business consultant and training your employees diligently from the get-go.
Consider Your Future
On a personal level, make sure you’re ready before you begin the process of selling your business. Have you achieved enough financial security that you’re comfortable living without income from your business? Look at your current debt and cash flow before deciding that you are moving forward with the sales process.
You may also want to consider what your role could be within the company after you sell it. Although you may not be the CEO anymore, you could continue working for the company in a smaller capacity and negotiate this in the sales agreement.
Take a Hard Look at Your Books
The first thing you should do is to get a fair valuation of your business. Once you know how much your business is worth, you’ll have a baseline understanding of what you can reasonably expect to make in a sale. With this information, it’s time to get your books in order. Buyers will want at least three years of financial information when they’re analyzing your company, and it’s in your best interest for your finances to have been accountant-reviewed.
Due diligence is becoming more important than ever for buyers. Buyers will take their time going over your financial statements and checking out everything from your recent real estate purchases to equipment replacements. Make sure that every cent of income has a place within your reports and that all expenses are company related.
Build Your Team of Trusted Advisors With an M&A Business Consultant
Chances are, you’ve never sold a business before. Don’t try to navigate the entire process by yourself, no matter how much of a self-starter you are. You need an expert team. Key positions to fill include having an accountant, business consultant, lawyer, broker, and financier if you need additional funding from a third party. Your best bet for selling your company at the best time possible is to collaborate with these trusted individuals.
One member of your team that can make the difference between selling your company for millions or closing it down without a sale is a mergers and acquisitions business consultant. Investment banking advisors can prepare crucial documents to represent the financial state of your company best, take your company to market, and even negotiate the terms of the agreement. Your advisor can also handle sensitive parts of the process, including NDAs.
Only Sell During a Time of Growth
One common mistake that owners make when trying to sell their business is waiting until burnout strikes or bankruptcy is imminent before they begin the sales process. Ideally, you will begin the steps necessary to sell your company at least a year before the sale is officially made. This means that you will need to have consistent growth for at least a year before you make the sale to secure the best deal.
Growth generally means that sales are up and profits are healthy. The most important number that buyers will look at when analyzing your growth is your EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s in your best interest to maximize this number. Working with an M&A advisor will ensure that you can increase this number and sell at the most strategic point.
Consider Factors in the Economic Environment
Not only does your business need to be optimized to secure the best sale, but you’ll also benefit from optimal market conditions. Consider factors on both the microeconomic level and the macroeconomic level when considering the market.
Microeconomic Factors
The microeconomic factors within your business are the variables that affect you individually. These factors include the demand for your products or services, the competitors in your industry, and how your business is perceived in the community.
One important element to keep in mind when selling a business is how the supply chain impacts you. If your business relies heavily on certain inputs, buyers will want reassurance that your business could still succeed despite supply shortages or price increases.
Macroeconomic Factors
Macroeconomic variables affect the entire economy, including your business. Key macroeconomic factors influencing the right time to sell your business include inflation, GDP growth, and interest rates. Many buyers look to buy businesses when interest rates are low and the economy is growing. Certain industries like retail sales and international trade can indicate the success of your business in broader economic conditions.
Train Employees for Independence Before Selling a Business
Buyers must be confident that your business can work with or without you. This means that you try to minimize your role in day-to-day operations as soon as possible and instead rely on employees who can get the job without you. There is nothing more important to the successful transition of a business from one owner to another than diligent employees who are capable and dedicated to what they do.
While there’s always a chance that a buyer may completely overhaul the company and hire new workers, many are looking for a business that can already operate effectively. It’s an asset to have employees who can accomplish what they need to do. Ensure employees have received sufficient training and can complete their responsibilities without needing micro-management.
Pre-Qualify Buyers
You likely already know that most business purchases are complete with the help of third-party loans (typically the U.S. Small Business Administration). But if you enter into the selling process without a buyer who can’t secure adequate financing, you’ve just wasted time and opportunities. The time you spend finding a new buyer or working with the existing ones results in charging market or economic conditions that could then impact your deal.
Save yourself from the headache by pre-qualifying your buyers before selling a business. With this step taken care of at the beginning, you can close a deal more quickly and leverage optimal market conditions when they happen.
Operate Like You’re Selling
If you remember one thing from this article, remember this: Always operate like you’re selling. You may just be beginning the sales process, or you may want to be at the helm for another five years. Regardless of your schedule, the best way to make the most of perfect timing is always to behave as if you were planning to sell. Instead of fixing your books before you sell, keep good books now. Instead of boosting employee training efforts in the future, train them well now.
Sell your business at the right time and with the right people. Our team at ASA Ventures Group combines years of expertise with strategic decision-making to optimize the sale of your business. Contact us at ASA Ventures to learn more about how we can work together, or visit our testimonials page for more information on past work.
