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Knowing When to Sell Your Business

Small Business Financial Article
Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.

Knowing When to Sell Your Business

Knowing When to Sell Your Business

If you are like many business owners, you will spend years or decades building your business, giving little thought along the way as to when you will sell it. Eventually, the moment comes when you start thinking more about it, but you’re not sure if the time is right. The decision to sell a business is very personal, but it is also influenced by several factors that can affect the outcome. Here are five key factors to consider.

Are You Ready to Sell?

You might consider all of the practical issues of selling your business, but until you explore your own readiness –financially and emotionally – you could come to regret your decision.

Financially speaking, business owners might look at the sale of their business as the answer to their retirement security. Yet, many never do the financial planning to determine the most tax-efficient way to take money from the business or to calculate the spend-down rate of their capital to ensure their income could sustain their lifestyle.

The more critical issue to consider is your emotional attachment to the business. Selling a business without pondering the question of “What’s next?” can sometimes lead to a deep sense of remorse. Having a life plan or exit strategy in place can provide the assurance that you have options.

Is Your Business Saleable?

If you are assessing the [saleability]( of your business, you need to look at it from the vantage point of a potential buyer, not your own rose-colored lenses. Ask yourself the question, “Would I buy this business?” Your focus should then turn to eliminating the negatives while accentuating or enhancing the positives in five areas where a prospective buyer is bound to look:

  • Profitability- the trend is what’s important
  • Solvency – the less debt the better
  • Market position – is your business a leader?
  • Management/Employees – do they add to the value?
  • Customers – size, diversity, loyalty and growth potential

By viewing your business through the eyes of a buyer and understanding what factors buyers consider in determining a price they will pay, you can concentrate your efforts in on improving those aspects of your business that will have the most immediate and visible impact on its value.

When is the Best Time to Sell?

Obviously, the best time to sell a business is at the peak of a market, but that isn’t something you can always control. At any particular time, your business might be doing well, yet there could be things going on in the market, the economy or any number of factors, that could negatively impact the sale of your business. If your exit strategy is more flexible, you may be able to wait through a market cycle. However, there is no assurance that the environment will be much improved at the other end.

When you start thinking about selling your business, the only thing you can do is focus on those things you can control and put your energy and resources into managing your business as if you had no plans to sell it. Eventually, the time will be right.

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