Jerry Liss
Senior Regional Business Advisor
Lisiten Associates
As a business owner, you are certainly aware of the immense value that your business contributes to your net worth. In fact, it is likely the single largest asset you own. Therefore, deciding the best time to sell your business can be one of the most difficult and emotional decisions you will face in your professional life.
There are a variety of reasons that a business owner may consider selling their business. A few common reasons are: the trending profitability of the business (upward or downward); health issues; cash flow management issues; meeting retirement goals; lack of a viable succession plan; lack of motivation to grow the business and burnout.
Burnout is a valid reason for an owner selling his or her business. A business owner can experience burnout even with a business that is successful and growing. Many independent business owners feel they have worked hard, made their money, and that now is a good time to cash out and move on, before burnout endangers the health of the business.
The following warning signs should remind a business owner that cashing out beats burning out:
You are constantly overwhelmed When a business owner is a primary decision-maker, even small tasks and minor decisions can seem bigger than Mount Everest. These owners have been shouldering the burden for too long and the isolation has taken its toll. You sense a failure of imagination. Burnt-out owners are so close to their work that they lose perspective. Prioritizing becomes a major daily challenge, and problem-solving sometimes goes no further than the application of business Band-Aids that cost money in the long run rather than increasing profits.
The joy is gone. Although owning a business is challenging, it should also provide a good measure of enjoyment. When the workday begins with dread or boredom, the owner probably needs a change of scenery and a new challenge. You are simply exhausted. Being “just too tired” is a complaint heard just as often from the owner of the successful business as from the business that is struggling to survive. In fact, a business that is growing will create increased demands of time and energy. No matter what the status of the operation, the sheer work of keeping a business going day after day, year after year, is enough to encourage a business owner to make a change. This kind of schedule is not for everyone; in fact, statistics show that it’s hardly for anyone on a long-term basis.
Thinking of Selling?
As 2022 looks to be a favorable mergers and acquisitions and business sale environment, many business owners may conclude that it is time to sell the business. While it is true that some businesses can sell because of an offer that comes “out of the blue,” the reality is that most sales occur because of a well-designed process intended to maximize value for the seller. Thorough preparation and an organized sale process typically provide higher valuations and quality buyers.
Start early to build your team. One of the most important things a business owner can do when preparing to sell a business is to assemble the right team of advisors. Having the right team in place prior to starting the sale process is one of the best ways to ensure both maximum value and execution certainty. The team should include an attorney, an accountant, a qualified professional business broker and a wealth manager. Each advisor will play a key role in planning and executing the transaction and ensuring post-sale success.
The sales team will provide critical advice on matters such as:
– Conducting an initial diligence review that will identify gaps
– Setting a realistic valuation on the business
– Identifying potential buyers with a high likelihood of successful execution
– Responding to due diligence and information requests from buyers
– Structuring a transaction for tax and liability protections
– Dealing with sale proceeds to ensure that a seller’s post-sale goals are met.
Building a team that the owner trusts and is comfortable with is essential since that team will be providing critical advice and guidance on what is likely to be one of the most significant events in the business owner’s professional life. In the case of a family-owned business, the sale also may have wide-reaching effects on various extended family members whose personal and professional lives have been tied to the business, sometimes spanning many generations. The principal owners may need to spend time preparing the family for the sale as well. It is also important to note that while the sale planning and process are ongoing, someone needs to keep an eye on managing the business and making sure that it delivers the expected results.
The right advisory team should free up the business owner and management team to continue to execute the business plan with minimal disruption. Keep growing the business as if you were not selling it! As we move into 2022, any owner that has an eye on selling should be thinking about putting the deal team together sooner rather than later to address any potential issues with the business (such as accounting issues that might need to be dealt with before getting too far into the calendar). Businesses sell for many different reasons, for example, the buyer wants to add a product line, get access to a customer list, or own the intellectual property tied to the business. There is no single “magic bullet” or piece of advice that applies in all situations. But having a seasoned, experienced team in place to advise an owner is the best way to ensure that the owner receives guidance that can be relied on so that the owner can make the best decisions around a sale.
When is the Best Time to Sell a Business?
There are myriad factors that determine the best timing for selling a business: the financial condition of the company, valuation, growth cycle, profit history and the current market. Usually, the best time to obtain the highest price occurs when sales and earnings are trending upward. A solid earnings trend will enable a buyer to pay a higher multiple for the business. A history of good performance also gives the buyer confidence in projected future earnings. Value is dynamic and proper timing makes a big difference in the prices paid for business acquisitions. External factors such as the economy, industry trends, competition, stock market volatility, investor confidence, interest rates and geopolitical considerations are cycles of constant change that impact value.
Timing the Market for a Business Sale
How should you start thinking objectively about the best time to sell? A good visual of the right timing would be to imagine the life cycle of your business plotted as a bell curve with the peak being the top of the growth cycle. The top is when you have reached the flat plane of growth…a sustaining mode. Buyers pay the best prices when they can’t see the top, when the curve is still climbing upward. Once the top is visibly breached, buyers may pass on the opportunity or may pay prices based on a downward trend and a higher risk factor. If you wait until your revenues are already sliding over to the downside of the bell curve, you have waited too long. Your business has already started to retire before you have. To get the best deal, you must sell on the way up.
A Vibrant Acquisitions Market
The market for selling small to mid-market companies will remain steady as baby boomers continue to retire over the next ten years. Now may be the ideal time to consider selling your business before the market becomes saturated with sellers all heading for the gates at the same time! Buyers in every category are looking for alternatives to traditional investment avenues. They are looking for stability, better predictability and control. Business acquisitions offer all of these and can also offer a better return on investment than other investment opportunities.
If you are thinking about the future direction of your business and would like to discuss the “Steps to A Sale”, please feel free to contact me via email or phone call. As a past President of the STA and as a business owner of a subcontracting firm that was successfully sold in June 2019, I am familiar with our industry. I will be happy to provide answers to your questions and help guide you through the process of making this critical decision.
Jerry Liss
Senior Regional Business Advisor
Lisiten Associates
516-660-2700
Lisiten.jliss@gmail.com
www.lisitenassociates.com