When is the right time to sell a business?
Updated: 18th May 2016
Owners sell their businesses for a variety of reasons, from cashing in on their hard work to a desire to focus on other areas of their life.
The definition of a good deal is determined by the outcomes you’re hoping for. This could be securing the highest possible price, sometimes it’s a clean exit and sometimes it’s to retain shares, others may be concerned about the continuation of the organisation after they leave.
Whatever your goals, you’ll substantially increase your chances of finding the right buyer willing to pay the right price if you understand which factors make for a more favourable market. Knowing this allows you to prime your business for the sale and take action when the time is right.
The state of your business
It may seem counterintuitive to sell a good business and keep hold of a struggling one, but if your main objective is to command a high price then a business in its ascendancy is worth more than an organisation whose fortunes are tumbling downwards.
Consecutive years of rising turnover and profits are always appealing. So too are successful launches of new products or entries into new markets where there is still plenty more potential for growth.
Boardroom conflict, patents due for renewal or an over reliance on key customers, suppliers or staff could all drive your price down.
The saleability of your business will also depend on factors outside of your control.
Low interest rates, for example, makes for cheaper borrowing. This means the market has more buyers, which leads to more competition, and so you can achieve a higher price. In addition, if the buyer’s debt repayments are lower they may be able to offer to pay more.
Tax and relief will determine how much of your sale price you can keep. Our advisors are able to help you plan an efficient sale, but it’s also worth noting that Entrepreneurs’ Relief on Capital Gains Tax is currently quite generous, making the current climate a good time to sell.
Your wants and needs
The sale of a business will hopefully net you a nice financial return, but this isn’t always the main motivator.
Sometimes the joy of running your business dissipates or it becomes too much hard work, maybe you’re hoping to spend more time with family and loved ones, or perhaps your priorities have changed for other reasons.
These are all indicators it can be time to sell up. When commitment to running a business wanes, so too will your performance. Not only could this erode the company’s value over time, but you’re putting at risk the jobs of your employees.
In some cases it’s best to put in a few final years to maximise the selling price, in others it can be smarter to cash out while you can in order to go your separate ways.
Sometimes the best time to sell is simply when offers start coming in.
That’s not to advocate jumping at the first offer that comes your way. It is always worth researching the market to ensure you’re getting best value. But when interested parties are approaching you, it can be a fairly sure sign that you’ve got something worth selling and multiple bids can mean that you have the freedom to set the price and the terms of the deal.
A variety of factors dictate your chances of securing a good deal. Some you can affect, others are out of your hands. You can, however, improve your odds by planning well in advance.
Talk to your advisor about timeframes, prices and outcomes - no matter how far in the future that may seem at this point in time. A sound and tax-efficient exit strategy can take years to put into action, but you’ll want to be ready when all the factors fall into place and it’s time to sell.
Emma qualified as a Chartered Accountant in 2002. Since then, she has specialised in corporate finance, joining BTG-McInnes in July 2006. She has extensive experience in advising the SME market on fundraising, re-financing, acquisitions and disposals, across a broad range of industries.