Timing the sale of your business?
Timing is the single most important factor in selling a business. To understand why you must first understand what usually drives the prices paid for businesses.
The best time for an owner to sell his business is when the sale price is high. (Now what a silly statement that is)
So what drives sale prices?
Economic conditions, industry trends, buyer activity and a Businesses overall performance and other non-financial aspects contribute.
Now many of these things are outside of the owner’s control, however they will significantly influence the price paid for a business. With both internal and external factors in mind, the business owner must assess whether the overall selling climate is optimal now or is likely to improve in the future.
If we look at the factors within the owner’s control and how he or she may be able to increase the sale price for the business.
Financial position of the business
If a business owner knows that he or she wants to retire in a few years, early planning is important. Buyers want to see clean up to date accounts. Buyers will pay more for businesses with strong financial history and records.
The more reliance there is on just one or two individuals, the higher the level of risk associated with the purchase of a business. The best time to sell is when there is enough management depth to reduce the risk levels to the buyer.
Customer or supplier concentrations
High profits from just a few customers or suppliers can also increase the level of risks associated with the purchase of a business. Usually, when more than 20 percent of the sales come from one customer, some sort of earn-out arrangement is made based on the retention of the customer. With a little planning, you can possibly reshape your client base to maximise the sale price.
Owner burn-out or illness
If you have been in the business for 10,20,30 years and no longer felt motivated or your heart just isn’t in the work. When we’re feeling burnt-out, we don’t pay attention to the things that make our business a success.
Planned retirement is perhaps the best reason for selling. Retirement provides the buyer with a valid reason for the owner wanting to sell.
It is important to consider potential taxes costs (payroll, income, estate, capital gains and personal) when considering the sale of a business. Your accountant or financial advisor can advise on these issues. Selling at the wrong time may cost you big time at the ATO.
More buyers competing for your business tends to drive up the price. You should be well aware of the buying activity that is going on in your industry.
Numerous other factors, both internal and external, can impact the timing of selling a business.
With so many things to consider, it is not possible for all of these to be in your favor at the same time.
But by realising how certain trends and situations can affect a business price, owners are able to make more sound decisions when it comes to planning the sale.