When Should I Sell My Business?
Timing the market is a risky strategy. It is especially risky for private business owners who don't have time to analyze economic and market data.
The good news is, you don’t need to time the market. You can take steps now to ensure you can exit when the time is right for you.
5 Steps to Take Control of When You Sell
Understand Your Personal and Financial Goals
The best time to sell is when your personal and financial goals can be achieved by selling your business. This may be obvious but until you have clearly established goals, you will not know what you are aiming for. To understand your goals:
Work with your financial planner to figure out when you will meet your personal financial goals.
Get a valuation to understand the value of your business.
Will the value of your business meet your financial goals?
If not, develop a strategic plan to get there. Execute the strategic plan review your plan v. actuals along the way to make sure you are on the right path.
2. Get Educated About Taxes
Meet with a tax advisor, discuss your goals and develop a tax strategy. One of the primary reasons business owners think they need to sell now is they are trying to time economic and tax policy. A tax advisor can help you understand your options and relieve this concern. Business owners have a surprising number of options for deferring or reducing taxes when they exit. It is important to plan early for this because it will likely impact which exit option you choose.
3. Understand Your Exit Options
Now that you know where you are going, determine how you are getting there. Armed with your financial goals and a tax strategy, it’s time to learn about your exit options.
Who you will sell to may include your employees (an ESOP), a typical buyer who wants to run your company as-is after the sale, or a buyer that wants your company as part of its long-term growth strategy. Each of these buyers will value your company differently so who you sell to will impact your ability to meet your financial goals.
In addition, how you market your company is important. Will you sell it on your own? Hire a broker? Work with an investment bank? Having a general understanding of your options and how they impact your sale will help you plan for the cost and time investment you will need to exit.
4. Diversify Your Portfolio
If your personal portfolio is heavily weighted by your business the timing of your exit strategy will have an outsized impact on your financial plan. You can mitigate this by taking some of your capital out of the business and using it to purchase other financial assets. This may be as simple as working with your lender to borrow money to fund the business so you can take out additional capital. You can also work with an investment banker to sell a minority of your business to a passive investor. Contact your investment and tax advisor to determine which is best for you.
5. Always Be Ready to Sell
In order for your efforts to pay off your business has to sell for the value that you need to meet your goals. The amount you sell for will likely be a multiple of EBITDA. What if you go to market and you get offers that don’t meet your goals? Do you just throw out all of your efforts and try again when you think the market will be better?
You can take control of your company’s value by making it always ready to sell. First, understand how buyers value your business. They will consider both EBITDA and the risk they are taking on with their investment. To understand the latter part of this equation, here are some example questions to ask yourself:
Do you have a strong management team? Are they incentivized to stay after your exit? Can they run the company without you?
Do you have forward-looking financial information? Strong controls? Reliable historical information? Does your forecast align with your strategic plan?
Are your sales team’s goals and incentives aligned with your forecast and strategic plan? Is your growth strategy reliable and in line with your forecast?
Do you have sustainable, positive, and growing cash flow?
What is the composition of your customer base? Is your customer base diversified? Are sales to your current customer base sustainable and transferrable?
These are a few examples of questions you can ask to understand how an investor values your business. A full assessment of your company will help you identify which improvements have the greatest impact on the value of your business.
Summary
At any point in the exit process, you may decide that you need a trusted advisor to help implement, manage, and execute your exit plan. Highpoint CFO can help you reach your goal of exiting at the multiple you deserve. Contact us to learn more about our services and how we can help you be always ready to sell.
About
Highpoint CFO is a CFO consulting firm based in Tampa, Florida that serves clients throughout the US.
Scott Young is the President and Principal Consultant at Highpoint CFO. He is a CPA, Certified Merger & Acquisition Advisor (CM&AA) and Certified Value Growth Advisor (CVGA) with over 25 years of experience in finance and accounting at industry-leading companies.
#smallbusiness #mediumbusiness #consulting #CFO
Further Reading
Learn more about Highpoint CFO’s Always Ready to Sell approach to CFO Consulting.
Selling your business to an ESOP
