In my last two articles, we looked at two factors impacting the timing of the sale of your business: taxes and hockey sticks. In this article, we discuss the basic question: when is the absolute best time to sell your business?
Over the years, the question business owners ask us most often is, “Is now the right time to sell my company?” It is a fundamental and age-old question.
Sellers always want to “time” the sale of their businesses to maximize their return, either through a higher price, lower taxes, or, hopefully as we have seen in the past 15 years, a combination of both.
We’ve talked about taxes and whether or not Federal long-term capital gains rates will increase in the future. We talked about the health of your business and whether or not you are selling a hockey stick. Both taxes and hockey sticks have an impact on the timing of the sale of your business, but are not the single, most important factor.
The overall health of the economy is a factor as well. Back in 2009 and 2010, during the height of the Great Recession, there were not many transactions being completed. However, during those years, we at CFA completed several significant transactions with clients whose business were not negatively impacted by the Recession (yes, there were a number of industries which did just fine during the recession).
Market conditions can make it difficult to sell your business. If your industry is in decline or turmoil, buyers may be wary to make an acquisition. However, we recently closed a transaction in the imaging services industry even though our client was subject to a patent infringement claim which arose during our selling process.
Which leads us back to the question: when is the best time to sell your business? At the end of the day, regardless of the economy, the market and the state of your business, the absolute best time to sell your company is when you are ready to do so. We call this “aligning the moons.”
Even if taxes are low and your company is performing well, if you are not fully committed to the process of selling, if you are not mentally prepared to give up control of your business, if you are not emotionally ready to let someone else make the important decisions about your company, it is not the right time for you to sell.
Recently, we were working with a prospective seller who was approached by several buyers interested in acquiring his company. He had not previously thought about selling his company (an imaging supplies wholesaler) but with all the unsolicited interest shown by buyers, he thought maybe it was time to sell. In speaking with the potential seller, we learned he had been an entrepreneur for more than 40 years, had just brought his son and daughter into the business, and literally had no outside interests beyond his business. It was clear to us even if the buyers made amazing purchase offers, he was not emotionally prepared to walk away from his business. Ultimately, based upon our advice and counsel, the owner decided now was not the right time to consider a sale and is focusing on continuing to run his company.
I leave you with the two maxims of the M&A industry which have always proven true when it comes to determining the absolute right time to sell your business:
- A good company with good profits and good people in an industry of interest to buyers will always sell for a fair price regardless of the economy, and;
- The best time to sell a business is when you are ready to sell, never before.
#2 says it all, doesn’t it?
