Timing is everything. But what is the best “timing” when it comes to selling your business? It’s certainly an individual decision (no two business owners’ situations are alike). But to help identity what’s right for you and your business, look for these clues:
- Your business is doing well. It’s heartbreaking to witness business owners selling at a loss out of desperation. Ideally, you want to sell your business while it’s healthy or, better yet, in growth mode. Buyers will place a premium on its momentum. To accurately assess your business, work with a valuation professional. Your take on things may not play out on paper. If your financials and valuation support a rosy future, take that as a sign it may be time to sell.
- You’ve been planning for a while. We often tell clients that it takes ten years of planning to sell a business the right way. That doesn’t mean you can’t sell sooner, but it can take a decade to best increase business value, adjust factors like your tax structure, put the right personnel and leadership in place, and more.
- Your successor is ready. We hear all too often about well-meaning business owners who have a hard time letting go of the day-to-day or financials of the business, even when their successors are more than capable of taking over. Asking someone else to lead the business while you’re looking over their shoulder dictating or second-guessing their every move can damage the business or send that successor flying elsewhere. Sometimes the best way to ensure your legacy is to know when to let go of the reins.
- The economic and tax landscapes support it. Outside forces can sabotage a sale. These can include a changing economy, business regulations, and tax laws. Sometimes strategically accelerating or delaying a deal based on a government administration change or other factors could put thousands more in your pocket. Government contractors specifically should pay close attention to this type of timing.
- Your tax situation is in a sweet spot. While outside tax changes can play a role, your personal tax situation could also affect the timing of a sale. It’s vital to review your income and other financial factors with a tax professional to help you determine the possible tax liabilities a sale could trigger and where the opportunities to save on taxes are hiding.
- It’s the best scenario for the business. Maybe selling the business 100% isn’t the best way to move forward. Weigh your options like a merger or partnership or selling non-core parts of the business to streamline operations. Some of these moves could further strengthen the business value for a more profitable sale down the line.
Also, be sure that selling is what you genuinely want to do. It’s important to decide that in advance to be ready the moment conditions are right. The buyer may turn to other opportunities if you get caught up in your own interpersonal debate. “I was fortunate to have good professional advice and put a plan in place six years in advance of actually receiving an offer,” a business owner and client told us after selling his company and retiring at 53. Look at his exit strategy advice here, which still rings true today.
Alternatively, don’t sell to an outside buyer in haste if you’d rather pass down your business to your children, but they’re hesitant or unable to take over. Consider some family succession planning options first. Perhaps your children could be passive heirs who retain ownership but aren’t actively involved in the day-to-day operation of the business, for instance. There are several ways to pass down a business so that the family legacy is preserved.
A smart small business sale takes careful planning and a willingness to set aside assumptions and think outside the box. That’s why it’s vital to consult with various financial, legal, and tax professionals first. Feel free to contact us with questions.