When Is The Best Time To Sell A Business?
We highly recommend you start planning to sell your business one to two years in advance of actually selling it. Timing considerations are incredibly important when it comes to maximizing how much your business will sell for.
In this brief article, we’re going to highlight some of those timing considerations. We’re not going to approach the subjective influences that can play a factor in selling your business, such as wanting to retire or deciding to move on to another business. Instead, we’ll focus on how you can time the sale of your business to maximize its value.
Major timing considerations when selling a business
Sell when revenue is trending upward
Think about it from the buyer’s perspective - would you want to buy a business with flagging revenues? You might - but at a much lower price than you would if revenue was trending upward.
You don’t want to sell from a position of weakness - if it looks like you’re selling the business because you don’t think it will continue to be profitable, you’ll have a much weaker hand when it comes to negotiations. The longer revenue has been trending upward, the more money your business is likely to sell for. Don’t wait until revenues peak and then try to sell your business (possibly on a slight downturn) …. Sell when revenues are climbing.
Sell when key stakeholders are stable
Again, you want to sell from a position of strength. When key employees/management have recently left your business, or key customers have decided to take their business elsewhere, potential buyers will know about it.
This is one of the reasons business brokers are essential allies when you’re looking to sell your business. Discretion is of the utmost importance - if key customers or employees learn that you’re selling your business, they might decide to leave before the new owners take control.
Important timing considerations when selling a business
Sell when there’s still time left on your lease
This is most important when location plays a major factor in how your business performs. Buyers may not want to relocate within the first year of having purchased your business.
Landlords often want to be involved in the sale of a business - this is so they can ensure that a prospective buyer has sufficient means to continue to pay the rent. They may also want to renegotiate the lease with the new buyer. These renegotiations are another reason it’s important to have a knowledgeable team assisting you with the sale of your business.
Sell before there’s a major shift in your industry
The Blockbuster franchisees who thought to sell their stores before Netflix became the behemoth it is today made a very wise business decision. You know your industry better than anyone else - if you feel the winds of change blowing, and you predict that your line of business will be less profitable in a few years, it’s a good time to sell. Having said that, if it is generally known that your industry is in a decline already then the sales process can take longer as there is a smaller pool of buyers …. So factor in the extra sale time.
Remember, however, that you should always sell when revenues have been trending upward consistently. That leaves you with a narrow window of time in which to sell.
Sell before your most profitable season
For many businesses, the most profitable season is the Golden Quarter. Conversely, a business that sells camping supplies is likely to make most of its money in the spring and summer months.
If you’re a Golden Quarter business with 50% of your profitability in the October-December period, your business will probably sell for a lot less in February than it would in August. And if you make your money in the spring and summer, buyers are going to be a lot less tempted to purchase your business in October. When you finalize a sale a month or two before your most profitable season, buyers will see profits soon after they purchase your business - and that’s a powerful incentive.
Most businesses have very little seasonality, and there is no month that is any better to sell (or list for sale) than any other month.
Other timing considerations when selling a business
There are a number of other factors that can affect when you should sell your business. They include:
Black Swan events, like pandemics
The introduction or abolition of government regulations
Upward and downward trends throughout your industry
The willingness of banks to lend to particular industries
A business broker will discuss all of the timing considerations that are relevant to your line of business with you. If you’re looking to sell a business in Vancouver, learn more about how Jason Brice can help you.