Deciding when is the right time to sell your company
The question of WHEN to sell your company can be much more difficult to answer than HOW to sell it.
Deciding what to do with the business you likely started and have grown to the point it is, can be one of the most challenging and emotional decisions a CEO/Business Owner can make. In a survey done by Union Bank earlier this year of small businesses, 23 percent of the respondents said selling their business was the top option for business change this year. 35 percent stated that they planned to change business ownership in the next five years.
Organize time when selling your business
A rule of thumb the experts use is a timeline of at least 18 months to prepare and sell your business in order to maximize its value. The complexities of options of selling go far beyond simply agreeing on the value and price. From when to sell, who to help you through the process, what needs to be done to prepare for it, what type of sell structure do you want to who are potential target buyers, including the possibility of your own employees.
Narrow your options
First, the decision has to be made if you are personally ready to sell your business. Cerius talked with M&A expert, Steven L’Heureux and asked him for some advice on making this decision.
Here’re a few tips for this decision-making process.
First, analyze your own motivations. What do you personally want to do next? Do you want to stay active in the business, slow down or disengage? Now, what are the business objectives? What kind of money are you looking to pull out, put in and do you need to consider the tax implications. This will help further narrow your options.
- Example 1: Your motivation is to grow the business and stay involved. Next, analyze your business objectives – Are you willing to put debt on the business and introduce some risk, then you would look at acquiring another business. A lot of this depends on your personal appetite for risk. If your appetite is small, then consider bringing in a financial partner for the acquisition or consider a merger. If looking at a merger, just remember, in most cases this is a partnership. More often than not, the partners are selling the business within a few years to exit the relationship. Ask yourself, can I do business and live with the other owner?
- Example 2: You decide that for health reasons you want/need to leave the business. Next, do you want to financially abstract as much as you can now? Because then a strategic buyer/competitor will likely be your best option. They will typically pay more up front due to the synergies. On the other hand, taking into consideration tax implications, you may not want to extract all of the value from the business now and keep some financial interest, then perhaps a financial buyer would be best. When the company is then sold again down the road, you will end up with the value of the other half of the business, but it will be a much bigger business (hopefully…). Those two payments together will likely be more than selling to a strategic buyer up front.
Time is always a risk
Seasoned executive and start-up entrepreneur, Cal Lai offers some additional perspective what to consider when making the decision to sell your company:
“I think that there are a lot of reasons why sellers want to exit. They want to retire, and building a business takes a lot of time, energy, and effort and I think after 15-20 years in the seat it’s very tiring. And I know a lot of people, a lot of CEO’s and founders who built businesses and at some point put so much into it, that they don’t have the passion they once had. They want to do something different, so that’s another reason to think about why it’s time to be selling. I think a good entrepreneur is always looking at their options going forward. Time is always a risk, and the more time you’re business is out there, the greater risk you have. So if you have, most of us do, some financial goals in the sale of a business you’ve always got to be looking forward to that and understanding what the best timing for a sale is, how you can get prepared to sell and finding the right potential buyers.”
It is always a balance of what you want to do, what the risks are and what the realities are. Finding the right balance for you can be difficult. Talking it through with someone who understands the current environment or has been in your shoes can be helpful. Let us know who we can connect you with to help get some informative answers specific to your situation.