Selling a business is a chess match

Timing is one of the most important factors in achieving a successful business sale.  So when is the best time to sell a business? The best time to sell a business is when you have no need to do so. You want to sell when the company has demonstrated solid performance and the future looks bright.

Sell When the Business Is Performing Well and Prospects are Bright

Buyers are attracted to a successful track record.  Further, buyers are attracted to perceived future upside.

You should not be overly concerned about leaving this future growth for the buyer. To achieve maximum value, you must sell both the "substance" (fundamental track record of performance) plus the "sizzle" (future growth upside). You will get compensated for future growth through the premium paid.

Bottom line:  Sell when things are going well and the future is promising.

Five Factors to Consider to Determine the Best Time to Sell a Business

There are five primary factors to consider as you are determining the best time to sell a business.  Rarely do all these factors peak simultaneously, so judging them on a relative basis is important.  However, timing a  business sale when the general momentum is in your favor improves your odds of achieving a high price.  The five items to consider include:

1. Stable or Improving Macroeconomic Conditions

A stable or growing gross domestic product, relatively low inflation and low interest rates provide fundamental support to a healthy economy. This results in positive sentiment and confidence in deal-making.

2. Positive Industry Trends

Positive underlying trends, such as a strong growth cycle, related to your company’s industry often correlate with heightened levels of acquisition activity and high purchase prices. Buyers want to "catch the wave" and ride the secular trend.

3. Strong Company Performance and Prospects

The ability to credibly demonstrate a successful historical track record of earnings along with bright future prospects will generate the most interest from buyers.  More interest from buyers often leads to competitive bidding. This competition provides the leverage to negotiate the highest price and best deals terms.

4. Healthy Capital Flows of Debt and Equity

When there is an abundance of capital from strategic buyers, financial investors and lenders competing for deals, the market becomes very liquid, sometimes frothy.  These capital flows fuel transaction activity and high valuations.

5. Active Merger and Acquisition Market

An active merger and acquisition market is the manifestation of the interworking of these factors.  Strong and active M&As signal that deals are being completed at compelling prices.

Other Important Points About Determining the Best Time to Sell a Business

Quality Companies Successfully Sell in Just About Any Market

Companies with unique and sustainable competitive advantages are desirable. Companies with a strong market position within their niche, growth prospects and solid management are sought after by buyers.

Sell Before Performance Declines

Buyers generally pay based on trailing 12 months earnings AND expected future earnings.  If company performance has recently declined, you should not anticipate buyers paying based on some level of past average earnings achieved.  Sell before this happens.

Aligning Good Business Performance and Personal Commitment to the Sales Process Makes for Good Outcomes

The typical company sale is a complex and lengthy process, taking six to nine months, or longer. You should sell your business only when you are personally committed to the process, both mentally and emotionally. Given the number of deals buyers review and their limited transactional resources, they will not waste their time with uncommitted sellers.  Aligning good business performance and personal commitment puts you in a position of strength.  This alignment provides the greatest opportunity for successfully achieving your goals.

Lean on Your Advisors

You can lean on your investment banker and other advisors to provide insightful information regarding market trends. They can assist in judging the best time to sell a business based on your situation.