That’s the $64 dollar question and we’ve been asked it by business owners for over 25 years. Frankly if we could answer it, we’d already be sitting on a beach somewhere enjoying the sun and relaxing.
So, the honest answer is, “We don’t know when you should sell your business.” But, we do know that there are three things that you must be aware of and that must be in alignment to drive the highest value for your business:
- Your intention to sell or “Owner Motivation”
- Your business’ performance or “EBITDA”
- Your ability to find multiple, qualified buyers or “Market Performance”.
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Who’s Your Competition?
You think about this question every day your business is open. But have you ever considered it relative to selling your business? If you haven’t, it’s time to start. Consider this…
The number of small businesses is the US is a moving target. But, according to Cornel University, there are more than 12 million privately held businesses in the United States and over the next 5 – 10 years, 70% of those companies are expected to change ownership. That’s a lot of companies at any point in time that could be for sale. You need all the help you can get.
As one of the owners of these “small businesses”, you must have an understanding of the market forces that will be at work during that time. Armed with this understanding, you’ll be able to make decisions that will allow you to unlock the wealth your business represents (in other words, the stock you own) into cash.
How Many Buyers Are Three, Really?
There are literally billions of dollars in the form of committed funds (private equity funds) that are looking to purchase “good” privately owned businesses today. We believe, competition for “good”, privately held companies is going to be fierce for the foreseeable future. That will keep “good” company valuations strong.
You should also know that there aren’t that many “good” companies. You need to continually monitor your performance to know when your company is “good” and then sell it when the time is right. This will also make it better positioned in the event that you’re forced to sell.
Forced to Sell!?!?!
Yes, forced to sell. As a small business owner, you know “stuff happens”. Something could happen to throw your personal life into turmoil (for example, a divorce or death). Business performance may slump due to an overall industry down-turn. The company may be doing just fine, but better days are ahead.
And finally, you need a reasonable level of assurance that there will be several buyers willing to compete for the privilege of owning your company.