M&A Deals - When Should I Sell my Business?

M&A Deals - When Should I Sell My Business

The question that every business owner asks themselves at some point is “when should I sell my business?” The answer to this question may not be as simple as it sounds as often times the owner of a business is not only looking to maximize the value of a sale but may also be looking to stay with the business in order to help it grow and reach its full potential.

Age/Health of the Majority Shareholder

There are several factors to consider when contemplating whether or not it is time to sell. The age and health of the controlling shareholder is one of the most important factors. Many owners wait too long, either age or health-wise. Are there existing health issues or familial/hereditary health issues that may restrict the owner from operating the business at its maximum potential? These are concerns that should be addressed when considering the potential sale of a business.

Time of Life Considerations

In other cases, owners may want to sell because they feel “burnt out.” Sometimes, owners may not be burnt out; however, they’d like to pursue a different line of business or other opportunities. Both of these reasons should motivate the potential seller to consider the sale of their company. Usually, a loss of interest is permanent and the business will suffer if the owner isn’t that interested.

Risk Profile / Capital Constraints

Sometimes, when a company is growing at a pace that is difficult to maintain, it maybe time to seek a partner to help manage and finance the growing business. This is also one of the best times to sell, i.e., when the business’ growth looks like it will last forever.

Business owners should also plan to exit a declining business before the financial difficulties become extreme. Usually, there is still good value to be had in the sale of a business that has had financial difficulty. However, if the situation reaches the point of bankruptcy, particularly for a smaller middle market company, it’s usually game over. In contrast, it may also be time to exit a declining business that is heading towards financial difficulties.

Owners considering a sale should consider technological changes happening in their marketplace and consider if their company is keeping up or can keep up with it. If not, a sale should be arranged. Similarly, increasing or decreasing product demand should be considered. Increasing demand is great if the company has the wherewithal to finance the growth. Otherwise, it could be dangerous if the company can’t scale appropriately. If there’s lots of demand, it will increase the value of the company in a sale, even if the company can’t meet that demand itself.

Market Conditions

Owners should always stay abreast of the market conditions. Obviously, everyone wants to sell at the “top;” however, many wait too long. It’s better to sell just before the absolute “top” than to risk missing it. Over the years, Versailles Group has seen far too many entrepreneurs miss the “window” because they waited too long. As the expression says, “better safe than sorry.”

Conclusion

The issues of when to sell are often intertwined so it’s highly recommended for the business owner to have some serious conversations with their M&A advisory. Every company and owner has unique circumstances and challenges. A trusted M&A advisor will be able to understand the owner’s desires and factor in the other things like market conditions in order to determine the timing of the sale of the company.