When is the right time to sell your business?

If you own a small to mid-sized business, your business is likely your most valuable asset. Therefore, deciding the right time to sell a business is critically important. In fact, because your business is likely an enormous part of your net worth, getting the timing right is cruicial. Moreover, waiting too long to sell can pose significant risks and missed opportunities. Far too many business owners wait to sell their businesses until revenue or profit starts to decline.  And, that’s a bad strategy. Waiting too long to sell your business, or running a disorganized or inefficient deal process, can jeopardize your potential sale. Simply stated, time kills deals.  So, when is the right time to sell your business?

In this article, we explore the dangers of waiting to long to sell your business and provide strategic insights for entrepreneurs to consider.

Market volatility and economic cycles

If you wait too long to sell your business you risk being caught in unfavorable market conditions.  For example, who could have predicted the economic dislocations that occurred during the Covid-19 pandemic. The only think that is predictable is that business cycles are unpredictable:

Economic Cycles: If you sell your business during a recession or economic slowdown you may receive a lower sale price versus selling during growth cycles.

Market Volatility: Markets are inherently volatile, and economic conditions can change rapidly. Don’t wait too long to sell. Indeed, if you wait too long to sell you may experience reduced demand and depressed valuations.

Personal readiness and lifestyle changes as motivators to sell your business

Personal consideration may impact when you decide to sell your company. For example:

Family and Personal Obligations: Changes in personal circumstances, such as family obligations or health issues, may necessitate selling the business sooner rather than later.

Burnout and Stress: Running a business can be stressful and demanding. Delaying the sale could prolong the period of stress and burnout, impacting your health and well-being.

Retirement Planning: If your retirement plans hinge on selling your business, waiting too long may delay your ability to retire comfortably or pursue other personal interests.

The performance and growth trajectory of your business can influence its attractiveness to potential buyers:

• Peak Performance: Selling when your business is on an uptrend is ideal—showing consistent revenue growth, strong profitability, and expanding profit margins to show the benefits of scale and operational efficiency—can maximize its valuation and attract premium offers.
• Industry Trends: Industries evolve, and market dynamics shift over time. Waiting too long to sell may mean missing out on capitalizing on current industry trends or emerging opportunities.
• Competitive Advantage: Your business’s competitive advantage may diminish if you delay selling. New competitors, technological advancements, or changes in customer preferences could erode your market position.

Market dynamics and buyer demand play a crucial role in determining the success of a business sale:

• Buyer Interest: Buyer interest may fluctuate based on industry trends, economic conditions, and strategic opportunities. Waiting too long could mean fewer interested buyers or a smaller pool of potential acquirers.
• Strategic Fit: Finding the right strategic buyer who values your business’s unique strengths and synergies may become more challenging over time as market conditions change.

Delaying the sale of your business can impact your exit strategy and business legacy:

• Succession Planning: Proper succession planning ensures a smooth transition of ownership and management. Waiting too long may complicate succession planning and hinder your ability to pass on the business effectively.
• Business Legacy: Selling your business at the right time allows you to preserve and enhance its legacy. Waiting too long may risk tarnishing the business’s reputation or missing the opportunity to capitalize on its brand equity.

You also should carefully evaluate the tax implications of selling your business.

• Tax Efficiency: Selling at the right time can optimize tax implications, maximizing the after-tax proceeds from the sale. On the other hand, delay could lead to changes in tax laws or regulations that impact your financial outcomes. Although you shouldn’t let tax consequences the determining factor on your decision to sell, your belief that taxes are likely to increase in the near future would be another factor militating in favor of a decision to sell sooner rather than later.
• Capital Gains: Depending on the structure of the sale, waiting too long may result in higher capital gains taxes or other financial liabilities that could diminish your overall proceeds.

Perhaps the most significant danger of waiting too long to sell your business is the opportunity cost:

• Missed Opportunities: Delaying the sale may mean missing out on attractive acquisition offers, strategic partnerships, or investment opportunities that could have accelerated your business’s growth or enhanced its value.
• Concentration of Wealth.  For most business owners, their businesses are their most valuable assets, by far.  Accordingly, over time, this concentration of wealth can jeopardize your financial well-being.  In sum, selling your business enables you to diversify your wealth, which is always prudent.
• Future Uncertainty: The longer you wait, the more uncertainty you introduce into the sell or stay equation.

In conclusion, timing is critical in selling a business. As discussed above, waiting too long can expose you to risks and missed opportunities. Market volatility, personal readiness, business performance, changing business dynamics, and financial considerations merit consideration. Entrepreneurs must evaluate their goals, market conditions, and personal circumstances carefully to determine the optimal time to sell their businesses. Seeking advice from financial advisors, business brokers, and legal experts can provide invaluable insights and guidance throughout the process.

Ultimately, by proactively managing these factors and acting decisively, you can maximize value and successfully transition out of your business.

If you’re like most business owners who have owned a business for a while, at some point you’ll likely be bored, stressed, burnt out or ready for change. Some business owners are simply ready to retire. And, others are undoing an illness. If you’re ready to sell your business, please contact us for a FREE consultation.