Robbinex -Timing is Everything!

Determining the right time to sell a private business is as much an art as a science, because there are so many factors at play and each business is unique.

Before I describe the major factors, I want to emphasize that the timing of a business sale is critical. A business sold at the wrong time can result in a significantly lower selling price and thus, less money in the owner's pocket at the end of the day. No one who has spent years building up his or her own business, with all the necessary sacrifices, wants to see that happen.

The age of the owner is one of the first timing considerations, and there are three ways to look at an owner's age -- the chronological age (numerical age), physiological age (health) and psychological age (state of mind, including energy and drive).

Of the three, the least important is the chronological age... some people are physically and mentally finished at 50, while others are raring to go into their 70s.

Physiological age is a big factor in selling a business -- and unfortunately, selling in a hurry due to health problems is very common. When the sale is precipitated unexpectedly by a health crisis, the business owner may be pressured to wind things up quickly and will accept an offer that doesn't represent the true value of the company.

Or, if the owner is completely incapacitated, it may fall to relatives or others to sell the company -- and once again, the likelihood of "settling for less" is very strong. Finally, lack of planning can mean that the business is not in a good position to be sold, either because of the way it is organized, its sales, or other matters that have an impact on its value.

An owner's psychological age can lead to mentally "giving up" or, conversely, the inability to imagine a future for the business without him or herself in it. Both have implications on the owner's readiness to sell and the ability to do it successfully.

Judging the right time to sell a business also requires a strategic look at the business's growth cycle. Business have growth spurts at different times and owners should try to sell when they have benefited from an upturn. One client I worked with a few years ago wanted to sell relatively quickly, but an analysis of his sales figures suggested that his business was in a major upswing and if he waited a couple of years he'd be able to sell it for twice as much.

It must be said that timing a business sale on growth in sales is a tricky calculation -- there's no way of knowing how high the high point will get, nor, when things are sliding, how low the low point could be.

Another key factor in determining the best time to sell is by paying attention to economic trends. For instance, there are currently many signs that Canadian and U.S. economies are heading towards a period of recession. When the marketplace slows down, businesses can still grow providing they take more market-share from other companies. But that requires the business to have something unique about it -- a distribution advantage, a technological advantage, or something else that allows it to thrive despite the economic slowdown.

The more common scenario during a recession is that profitability drops and risk factors increase. That creates a less attractive package for your business's potential buyer, because the buyer's expectation of profits in conjunction with the buyer's assessment of risk, is what drives the value of the business.

Factors such as the owner's age, the company's growth cycle, and the economy are three of the biggest factors in determining the right time to sell. There are many other nuances, such as family dynamics, personal goals, lifestyle decisions and more that influence when businesses are sold. But remember, if all you want is 10-15 per cent of the value, you can sell your business tomorrow. If you want at least 100 per cent of its value, it takes time and effective planning.

Consider your age, how your business is doing, and keep a close eye on the economy. Preparation to sell can begin as much as three to five years before a business is put on the market, and you should plan on at least nine months to a year for the actual sale process -- from the initial documentation and estimation of value through to the final closure of the deal.