Owning a salable business is a phenomenal achievement that is all the more rewarding when you are able to time the sale correctly and maximize your sale price. It’s natural for the first indicator to come from the heart. You know when you’re ready to exit. However, you have to keep in mind the overriding, outside forces that affect the sale, particularly when it comes to timing. Most notably, they are:
Buyers generally buy for future potential and opportunity, but they determining price or value based on past performance. The last 3-5 years of financial reporting are crucial to the sales price, particularly for small business owners. Decreasing sales, margin, or profit figures place downward pressure on the sale price and, quite frankly, make it more difficult to sell your business at your number. You want to sell when the financials show stability or, better yet, growth.
This reinforces the importance of accurate reporting. To quote a previous article:
“The struggle owners often have is showing profit and paying taxes. The thought of decreasing your income tax ends the moment you want to consider selling your business. It’s imperative that you show as much profit as you can because that’s what buyers want to buy. Unfortunately, that means you will have to pay more income tax.”
In other words, don’t doctor your books! Show the profit, bite the bullet come tax time, and position your business for the sale instead of the tax savings. Think of it this way: “pay me now or pay me later.”
Books looking good? Great. Next, we need to make sure the timing is right for the business itself. There are many variables at play here. Maybe you’re working on a new product line that has not yet been released. Perhaps you have put significant capital expenditures into R&D and haven’t seen ROI quite yet. Say you’ve had some turnover at the top and your new VP needs training and time with the business. Whatever the case may be, if it is something that you expect to enhance your business’ performance in the foreseeable future, wait for that vision to come to fruition before listing your business with a broker.
Most economists agree that the four stages of the business cycle—expansion, peak, contraction, and trough—span roughly 10-15 years total. You remember the 2008 Recession and, more fondly, the relief when our economy returned to growth around 2010. Being that we are now nearly 10 years removed from a trough, there are whispers and predictions of the next recession.
We say this not to get into economics or politics, but to illustrate two simple facts: 1) the market is currently ripe for selling a business, and 2) it may not be in the near future. The window of opportunity is real.
Now It’s About You
If you have made it this far and believe your business is salable, the only question left is the one you have already answered. Are you ready? Let Exit Consulting Group walk you through all of the above and more. Contact us today to get started.