Doug Ryder - Corporate finance partner, Wolrige Mahon LLP
If you are considering selling your business, timing becomes a secondary factor if you have been through a rigorous planning process and have the right team working alongside you. Most business owners who are looking to sell are doing so for one of two distinct reasons: (1) the business is performing well with the value maximized making it the right time to exit, or (2) the seller is tired of the day-to-day grind and wants out.
Depending on your reason, the factors in determining a good time to sell may vary.
If you are seeking an orderly transition and value maximization, the following factors should be present in the business to attract the broadest range of potential buyers:
•Proven financial performance, where the fruits of recent initiatives are reflected in the operating results.
•Industry stability, or evidence that the business is recognized as an industry market leader.
•Potential for purchasers to add value through expanding the business or boosting efficiency.
•A broad management base, indicating that the business is not reliant on the seller.
Before committing to a sale, sellers should:
•Ensure that they, and their family, are mentally and emotionally prepared for the ups and downs often encountered during the sale process.
•Have reasonable expectations around pricing, transition periods and deal structure.
•Put themselves in the shoes of a buyer. Consider why a buyer would transact, where they would extract value and how they would finance the deal.
We recommend at least two years of advanced planning before going to market to maximize your chance of completing a successful transaction.
Chris Larmer - Co-owner, Sequoia Mergers & Acquisitions
For many business owners, personal identity and business identity are intertwined, ultimately making the decision of when to sell the business more emotional than it is financial.
This is why it is essential to be honest with yourself when considering the sale of a business, and to ask before taking action what your real motivation is for selling.
If there is a strong motivation to sell, and you have a clear and rational reasoning for that motivation, you will have the strength to go through the deeply emotional process of selling your business without being overwhelmed. Being emotionally overcome by the process is a real concern that often causes the seller to withdraw from the sale or concede to revised terms due to buyer pressures.
Even with a firm understanding of motivation for sale, making that life-changing decision is difficult. The reality is that fearing the unknown can cause the seller to delay, sometimes indefinitely, to the detriment of the business. Further, many business owners make the mistake of attempting to time the sale of their business according to the state of the market – a game that gives the business owner only a 50-50 chance of winning, at best.
Instead, when a business owner thinks that he or she is ready to sell but is perhaps too anxious to take the plunge, we often advise trying to answer the question, “If you had the cash representing the enterprise value of your company in your hand right now, would you buy it?” We’ve found that those really ready to sell will see the relative risk through a new lens – one that allows them to make the right choice for them and their business.
Vik Khanna - CEO, Khanna Enterprises
When your full and complete enthusiasm for your business is diminishing, it’s time to assess the reasons and think about selling.
Passion
Passion shifts during the course of business cycles so it could be that you enjoy the rush of early-stage building and fast growth versus later-stage established revenues. Passion also changes for personal reasons. Take kids, for example. Maybe not being there for your first-born was an acceptable entrepreneurial price to pay but is something you don’t want to repeat with the second.
King versus rich
Where do you (and your ego) fit on the continuum of being king versus being rich, and can you emotionally let go of the business that you have built?
Or are you prepared to sell a part of the business – for instance, a company that you have successfully bootstrapped. It may be prudent to sell part of your business to bring in other partners and investors, even though you may not necessarily need the money, as this can serve two purposes: (1) new partners can propel your business and create more success, and (2) you have taken some chips off the table.
Valuation
In a sale driven by purely monetary considerations, you are like Spock, whose passion and ego almost always give way to logical reasoning. From the start, you have had an exit strategy in place and have been keenly aware of potential acquirers of your business. Now, you have hit your valuation target and it is time to sell. And of course, you have a plan for what to do next, too.
