Selling Your Business Is All About Timing
While you may be eager to sell your business immediately, be aware that careful planning and timing can have a material impact on your sale price. Observing market conditions, preparing your business for would-be buyers, and strategically positioning it as a viable enterprise will all play an important role in the timing of your sale. Below are a few guidelines to help you determine the appropriate timeline for the sale of your business.
Prepare In Advance
It pays to prepare your business for sale well before you put it on the market, both in terms of stress-reduction and potential income. You can work at your own pace in getting your financial records in order and then have the documents ready for prospective buyers before you create your business-for-sale listing. Plan to allow at least six months to a year to prepare for your exit. Diligent preparation, like having at least three years of financial records available for potential buyers to examine, will help you to show your business in the best light. Not only will you want time to gather all the necessary documentation that potential buyers will expect to see, but you'll also want to have the time to improve your company's position in the market, giving it more "curb appeal".
Also, keep in mind the time frame it takes to complete a business sale. Most sales take six-12 months from the time they are placed on the market to close. Careful preparation will give you more flexibility to align your sales timing with a favorable market and could help you avoid the pitfall of having to sell quickly at a less-than-ideal price.
Research the Market
To establish a fair asking price, you'll need to do some research to objectively determine where your business fits into the market. While you certainly don't want to underprice your business, pricing your business too high may drag out the sales process or even prevent your business from selling at all. Fluctuations in the market, and more specifically within your industry, will help you determine the best time to put your business on the market. Look for similar businesses for sale to get a feel for the current market and then seek the help of a professional. An appraiser or business broker can help you home in on a realistic asking price. BizBuySell Valuation Reports are a great starting point to get a ballpark figure.
Define Your Business's Value
When it comes to valuing your business, it's important to be objective. There are three common business valuation methods. Depending on the type of business being valued, including industry size and the circumstances of the sale, one may be more suitable to use than another. The income-based approach is based on projected earnings while an asset-based valuation focuses on the book value of a business. A market-based approach compares similar companies that have sold recently to determine the value of a business. Use valuation multiples to calculate a fair market value for your business.
Try to take a fresh look at your business through a potential buyer's eyes to determine your business's strengths and weaknesses. Take the time to promote its high points and work on its low points with an eye towards improving your selling price. Remember that buyers would ideally like to purchase a business when it's doing well and showing steady growth. If records show your sales in decline, then it may not be the best time to sell, since this will negatively affect your selling price.
You want your business to stand out in a competitive market as a worthwhile investment with an attractive ROI. This is another area in which a business broker's knowledge and input may prove invaluable. Your documentation should include past results and current performance in the market, as well as the potential for future growth. Potential buyers will not only want to see a record of good bookkeeping but will also want to know about current employees and your customer base. Positive feedback from your employees and customers will go a long way towards ensuring a smooth transition for potential buyers.
Marketing Your Business for Sale
A strong marketing presence is a good indicator to potential buyers that your business is a sound financial investment for them. If you haven't set up an easily identifiable online presence and user-friendly website, consider this a part of your seller's preparation. Once interested buyers discover your listing and sign an NDA, they will likely look up the business online, so have your website sorted out and up to date.
Determining when to sell your business is a big decision, with many considerations. Fluctuations within your industry and your business' current position within the market plays a vital role in determining when your sale will be most profitable. You want all those complex pieces of the puzzle to align to bring you the best market value for your business. It's possible that the time you take to improve your business may also produce favorable shifts in the economy, rewarding you for your hard work and patience.
When you're ready to list your business, plan on the process taking up to a year, depending on the nature and value of your business. For some industry specific insights into sale duration, see the median days on market data in our article, How Long Will It Take to Sell Your Business?