Now Is The Right Time To Sell A Business — Are You Ready?
There are many factors that determine right-timing for selling your small business. The financial condition of the company, valuation, growth cycle, profit history, and the current market. But there is one single thing about timing that comes into play that makes all other factors make little difference….it is the business owner’s emotional readiness to sell.
However, if your only criteria in the decision to sell your business is when you are emotionally ready to go, you will be in a weaker bargaining position and you may miss the boat.
Value is dynamic and proper timing makes a big difference in the prices paid for business acquisitions. External factors such as the economy, the mergers-and-acquisitions marketplace, industry trends, competition, stock market volatility, investor confidence, interest rates, and geopolitical considerations are cycles of constant change that impact value. Internal conditions within a company, of course, also change – often in combination with external factors, sometimes independent of those factors. Changes do, and will, occur and they always tend to impact business value – sometimes eroding value and sometimes increasing value.
Yes, it’s easy to understand that you should hold on to a growing business, sell it after it grows bigger. That makes sense, and may be right. But you can’t get the best price at the top of your growth cycle. Imagine the bell curve and the peak being the top of the growth cycle. The top is when you have reached the flat plane of growth…a sustaining mode. Buyers pay the best prices when they can’t see the top, when it looks like it’s all up from here. When others can see the top, they don’t buy, or pay prices based on the downside risk after the top. If you wait until your revenues are already sliding over to the downside of the bell curve, you have waited too long. Your business has already started to retire before you have. Buyers are not too interested in declining businesses. To get the best deal you have to sell on the way up — not at the top or the downside — and when the market and prices are good.
Markets change and fortunes change from year to year. Right now the small business market place is hot, especially in Houston, buyers are plentiful, and capital is readily available. Fueling the market is the leading edge of baby-boomer-business-owners reaching the exit zone, and the 30-something-up-and-comers are aggressively buying and building. Buyers exceed sellers, and we have a robust exit market –for now. The time will come when the flood of baby-boomer-business-owners ready to sell will outweigh the ready next-generation buyers, and prices and acquisition appetites will fall. As a seller, you do not want to be in the middle or later in that trend.
The economy is in its best shape since the dot-com bubble burst in 2001. Banks are aggressively lending money for all kinds of acquisitions. Increasingly, corporate America views the purchase of small firms as a shortcut to growth and innovation. As a result, a small-business feeding frenzy is in progress. According to FactSet Mergerstat’s January 2007 New Release, “even 2005’s celebrated market could not match the ebullience of 2006.” As of today, Mergerstat’s transaction chart indicates that 2007 will surpass 2006 activity, and is projected to be an all-time record level of activity.The time is right when the external and internal conditions are right. When the market, the buyers, and the money is good and terms are favorable. If those things are right, it’s time to get your emotional readiness in line, or you are likely to miss the boat. It’s that simple. If you turn down a great market, when buyers are willing to pay a great price, and if you wait too long for your emotional readiness to catch up, the market cycle will likely have turned. And, you will have to sell at a lower price, or wait for the next cycle.
The Market is ready and it is never wrong — and like time, it waits for no one.