If you are thinking about selling a business, chances are you’ve asked the question: “When should I sell my business?”. Timing the market has always been a challenge for business owners and investors alike. While right now is a historically great time to sell a business, it may not be great for every business, or every industry. With that in mind, it might be more helpful for you to know some of the worst times to sell your business, so you know what to avoid and how to get ahead of it.
Your Industry is Struggling
If your business is within a failing industry, chances are you have waited too long to sell your business. Business owners who find themselves in this situation can usually see it coming, but some try to squeeze a little more cash out of it, or hope for a recovery and wait too long. Others think they can sell to someone who can breathe new life into the business and find a way to overcome some of the challenges within the industry. The truth is that buyers are looking for businesses in growing, or stable industries, and will avoid those in fading ones.
Your Financials are Bad
A healthy financial foundation is at the heart of every good business. Your numbers need to tell a good story about your business, so if they are bad, chances are the story is bad too. There are good business concepts that are poorly executed. There are also good businesses with bad bookkeeping and poor financial management. However, buyers are looking to buy a business to make a profit, and poor financials are a big red flag. Some causes for concern include declining sales, shrinking margins, disorganized bookkeeping and personal expenses getting run through the business. If you have good sales numbers, but your books are a mess, have room to cut bloated expenses, or there are improvements to be made that can improve the value of the business, take care of them. Getting these things in order will remove concerns about the health of your business and add value to it.
You’re Burnt Out
Don’t wait until you’re so tired of working and running your business that you’ve considered throwing in the towel. If you have had the feeling that your business is a burden, thought about retiring, changing careers or trying something different, you may eventually get there. Understand that selling a business is not a quick process, and it can take anywhere from several months to several years to do it. During this time, you still have to run the business and do it well to maintain its appeal to buyers. This can be very stressful if you are already burnt out. Plan on taking about a year to prepare the business for sale, and another year to sell it. After preparing it for sale, you may get a second wind and reconsider. You would have lost nothing in the process and probably made your business healthier and more valuable in the preparation process. It’s important to have a little bit of foresight and take action when you’re feeling the need for change.
You’re Dealing with a Personal Crisis
Life can surprise us with unexpected health issues, financial problems, family disputes and other sudden occurrences. Sometimes it’s hard to see a crisis coming, but if you wait until you’re right in the middle of one, a lot of your decisions will end up being emotional ones. When you’re trying to sell a business it will also weaken your negotiating power, and cause you to try and speed up the process. This will almost certainly result in you having to settle for less money than you expected when you sell. You can’t always anticipate a crisis, but if you do, start the sale process as soon as possible. It can prevent damage to your business and avoid a load of stress and frustration as you simultaneously try to run and sell the business.
Your Business is Too Small
You might have had ambitious goals of growing and expanding your business that never panned out. Common sense would say that you can just sell a smaller business for less, but if you look at it from a buyer’s perspective, it’s not that simple. Smaller businesses carry greater risk, because they rely more heavily on the owner. If the owner brings a disproportionate amount of value to the business, when they’re gone, so is the value. Buyers also have to make sure that a prospective business can pay them a good salary, and have income left over to reinvest in the business. If the business is too small it may not generate enough cash to do this.
You’ve Lost Key Employees
Losing important employees can affect your selling situation in a few ways. It could cause you to have to work more to compensate for having a smaller staff, which could result in burnout. If the business is too reliant on certain employees it could also weaken its value, its ability to operate or its production. If you’ve lost managers, buyers could be deterred by the lack of proper management structure. If you find yourself in a situation where important team members have left your company, the best thing you can do is fill the positions, train the new staff properly, and then sell. This will also reduce the likelihood that you have to stay with the company after the sale to operate the business or train others.
Business Loans are Hard to Get
If the economy isn’t doing well and banks aren’t lending, it could be very hard to sell a business. During the financial crisis that began in 2008, banks were extremely restricted on lending, especially for small businesses. The market for business sales just died. If you try to sell a business in an economic turndown, or when interests rates are high and lending is restricted, you will have to accept considerably less money or be prepared to keep it for a while. Fortunately, if you are looking to sell a business right now, the market for business sales is at an all-time high. As long as the rest of your business is healthy and you don’t find yourself in one of the other situations on this list, you should have success.
If you own a Southwest Florida business, and you’re ready to sell, consult with an experienced business broker. CIBB has brokered successful business sales for big and small companies from every industry. Even if you’re not quite ready to sell, or you need to get some things in order, we can help you create an exit strategy and succession plan that will carry you through the sale of your business and beyond. Contact us to get started with a free business valuation and consultation and discover if the best time to sell your business is right now.