Timing Your Decision to Sell

When's the best time to sell your business?

In a perfect world, you'd sell when the national economy was humming along toward a peak in the business cycle, when your industry was "hot" among Wall Street investors, and when your particular business was having a banner year with next year looking even better. That's the time you'd be most likely to receive the most cash on the barrel. The same considerations come into play if you receive an unsolicited offer to buy your business — you'll get the best offers when you are riding high.

However, even the brightest economists can disagree about where the economy is headed at any given point in time, and your industry's moment in the sun may have passed years ago (or may never come). Your decision to sell out will probably have much more to do with your personal circumstances than what's happening on Wall Street. The point we're making is that, everything else being equal, you should aim to sell when things are good, rather than not-so-good or downright ugly.

Internal factors are important. Regardless of the state of the economy or your industry, there are a number of things you can do to shape up your business to make it more attractive to purchasers. Much as a homeowner would give the house a new coat of paint, repair anything broken, and even put some big flowerpots on the front porch before putting the house on the market, you should spruce up your business as much as possible. This is likely to take a year or more, unless you want to make it completely obvious to purchasers that you were "window dressing" in anticipation of selling out.

Start planning early. On average, once your business is on the market, it will take about a year to find a buyer and complete the deal. If you are planning to sell to family members or key employees, there are special opportunities to save money and taxes, but many of the more creative methods can take three to five years to put into place.

All these factors make it clear that if you know you'll want to sell by a certain point in time, you should start planning for it at least a couple of years in advance. After all, the classic definition of "market value" is the price at which property would change hands between a willing buyer and a willing seller, neither being under compulsion to buy or sell, and both having reasonable knowledge of relevant facts. While a deal can sometimes be put together in six months or even less, plainly, your best chance of receiving market value for your business is to allow plenty of time for the sale. Otherwise, you may feel pressured to take the first offer you get, or to accept terms that are less than favorable to you. Worse yet, you may not find a qualified buyer at all.

It's best not to try to sell right before your major leases or other key contracts expire. When prospective purchasers look at your business, they'll want to be able to predict what they'll need to spend for rent, labor, materials, supplies, and all the other major items. They won't want to have to renegotiate key contracts right off the bat, or take the chance that a lease may not be renewable at all. If you must sell right before a contract is scheduled to expire, we suggest that you try to renegotiate it early, so that you'll get a favorable rate (or at least a predictable one) locked in for your purchaser. At the same time, have your lawyer make sure that the contract will be assumable by a new owner, or you'll have gone to a lot of trouble for nothing.