07 May Trying to Time the Sale of a Business
Congratulations on a strong start to 2019. With 2018 ending in record profits you are more than ready to reevaluate the value of your business. If you have planned your exit strategy and watched as the overall economy has soared isn’t this the best time to sell your enterprise? This is a very important question for all small business owners – when to sell the business and how to make a very successful transition. Timing that just right may be more complex and it often is especially to us and to you if you have ever tried to sell a business.
To show strong sales and income growth helps add to a great story in terms of marketing a business. As brokers we want you to grow through any marketing stage of the business and that upward trajectory helps make the case that this is an enterprise worth buying now. Current growth is one indicator of future growth. Buyers are very discerning and often want to discount pops and recent bursts when they value your enterprise. This can disappoint an excited seller and discourage. Keep it in mind and then add some of these key insights into your sales equation.
Oak Capital Advisors recommends business owners consider several critical factors, including:
Key Business Sale Point. The valuation of a business is based on sales and income trends, typically over a three-year period. Buyers will discount a current win, even a seeming sustainable win. Waiting another year will not significantly decrease this point of view. Our job will be that you receive max benefit to any success in terms of an offer.
A Critical Word + Buyer Question. A buyer will ask us is the increase sustainable? They want to know if it is a short-term increase based on a special situation or customer? As we have said they will want to put holes in this and get the business for their best price. New sales trends will only help us to sustain or increase our confidence in the right offer.
Economic Forecast. When might an economic downturn negatively impact the value of the business? What if the macro indicators look good but your industry takes a hit? It happens during years that look like growth years to many industries. Look now at the automotive industry and influence of electric cars. It is happening there on a very big stage. The debate now in the news is whether sustained economic growth will continue or we will hit speed bumps. Predicting the future is of course very hard to do; selling in good times certainly helps to get a premium price.
What About That Increase? Certainly, an increase in sales can be reflected in the premium being asked for the business. If we post the business for sale we think it will help. We must do a deeper review of your 2019 results. An additional premium may very well be appropriate.
For your information and as we look at the sale of a business we commonly use an Oak Capital Listing Agreement for a one-year period, because it will take time to prepare the marketing materials, network, and find the right buyer for the business. Don’t even try to mix in the due diligence phase or any other delaying device that may be introduced into the sales process. It often takes time. We want you to be ready if the right buyer and transaction comes along in 30 days or within 12 months.
Selling a business is a bit different than selling a home, for example, as there are due diligence, financing, and legal steps involved. Time melts away. It may feel like a “hot market” but selling a business can drag more than selling a home. A strong broker will help gently but firmly push buyers for the best offer not drag it out. Knowing that people in any transaction need to feel the win-win we move them and help you retain the value of that new sales increase. As an intermediary for you we want that fiduciary responsibility to shine.
Our job will be to encourage your growth and our point of view will be that you sell only when the best offer, an acceptable offer is on the table. The best intermediaries don’t lose that perspective.
During this process you will be benefitting from the increased performance and becoming closer to your overall financial goals. You control whether an offer is acceptable and when. Sellers have no idea the timing for sale and the more options you have the better.
When the timing is right Oak Capital looks forward to working with you to complete a successful transaction. We appreciate the opportunity to work with you and look forward to working with you now or in the future. Even if you don’t work with us try to apply this insight and perspective as you continue to grow through 2019.