The decision to sell a business is a drastic decision with a lot at stake. It is therefore important to determine the right timing and prepare the business well for the sale.
A matrix can help with this, providing insight into four key factors involved in timing a business sale: economic sentiment, industry M&A developments, whether the business is ready, and personal considerations of the owner.
1. Economic sentiment
Economic sentiment refers to economic and market conditions at the time of the sale. Factors that come into play include the boom or bust, the favorability of the M&A market, the relative ease of financing, and things that impact cost such as commodity prices and dollar exchange rates.
For example, a good time to sell may be during a boom time, when there are more interested parties and the selling price may be higher.
2. Industry developments
Industry developments in M&A are also important in determining the right timing for a business sale. These may include consolidation, innovations requiring large investments, foreigners buying up businesses, private equity interest and changing legislation.
For example, if there is a lot of consolidation taking place in the industry, it may be more attractive to sell because there are more interested parties.
3. Business ready for it.
In addition, it is important to consider whether the business is ready to be sold. This might include looking at a prospect of justified growth, proprietary innovations that have already been accepted by the market, good management that makes the entrepreneur's role small, no large customers or suppliers who could easily choose another supplier or distribution partner, a loss-making component that has already been sold, and industry standard financing.
4. Personal considerations
Finally, personal considerations of the owner play an important role in the timing of a business sale. This may include questions such as: Am I the one who will lead the business into or into the next phase? Do I want to do something different before I turn 50? Do I want to get rid of the pressure of having to take care of everything and focus on what I'm good at? Or are there personal circumstances such as illness?
Ideal situation
The ideal situation should have all 4 factors simultaneously optimal, resulting in the best deal for a business owner. But this rarely happens in practice, so the final choice is always suboptimal. For example, an entrepreneur may choose to sell a business even if it is not quite ready and he or she actually wants to continue building, but economic conditions and industry trends are favorable.
The entrepreneur's personal consideration plays a leading role in this. It may be a good thought to continue for another 5 years and then sell, because the business will then be optimally positioned for sale. But what if in 5 years the economy worsens and the industry stagnates?
Timing sales
So timing the sale of a business is not easy. Several factors come into play, including economic sentiment, industry developments in M&A, whether the business is ready, and personal considerations of the owner.
Therefore, it is a good idea to work with an experienced M&A adviser to sort out the issues and determine the right timing.
