Every stock market investor dreams of timing the market perfectly and making a motza. Timing is also crucial in business – and never more so than when you’re planning your exit! I’ve seen business owners get very different outcomes, ranging from exceptional to disastrous, due solely to when they sold.
But how exactly do you “time the market” when selling your business? Here are the four key factors.
Factor 1: The general economic environment
Surprise, surprise: business exits are generally more successful in good economic times:
- Buyers are more optimistic and interested in buying businesses.
- They are more likely to have, or be able to obtain, funding for the purchase.
- It’s likely there will be more competition to purchase your business, which will help you get a better deal.
In poor economic times, it’s the exact opposite.
So, stay attuned to the economic cycle. Over the years, I’ve seen smart business people make a lot of money simply by choosing to sell their business during a growth period.
Factor 2: Your industry’s dynamics
It’s also crucial to consider your industry’s individual cycle. Most industries tend to go through periods of expansion and consolidation, technology change, and higher and lower profitability.
Your best opportunity to be bought for an attractive price is usually when your industry is in a growth phase. Buyer interest is always stronger, as larger players try to bolster their position by taking out smaller players.
Bear in mind that industry growth phases only come along now and again – so take advantage of them when they do! Otherwise, it may be some time before you can get as good an offer for your business.
Factor 3: Your business’s development stage
In my experience, not many business owners can establish and develop a business from the garage into a multi-national giant. There are very few Steve Jobs and Bill Gates out there!
If you’re great at starting a business and developing it quickly in its early years, but not as good at maintaining growth as it matures – and you have good opportunities to exit your business – you may be better off doing just that.
On the other hand, don’t exit too early if your business is poised to grow significantly and you and your team are capable of managing that growth. In particular, it may be smarter to turn down early offers if you’ve invested heavily in intellectual property, systems and processes but the profits are not yet fully showing.
Appraise your skills and your team’s skills honestly, and identify the “zone” in which you’ll realise the maximum value for your business.
Factor 4: Your own circumstances
The fourth factor is often the most important. Are you ready to sell? Will selling your business give you the financial return you want? What do you want to do after you sell your business? Every business owner’s circumstances are different.
I recommend taking time regularly – say, every 12 months – to consider the following questions:
- Would you sell if approached by a buyer?
- What sort of price and terms would need to be offered?
- What key factors would you consider in deciding whether or not to sell?
Putting it all together
Take a few minutes to consider the four factors right now. How’s the economy at the moment? Is your industry growing? Have you realistically added all the value you can to your business? Would it suit you, personally, to exit now?
Being prepared will give you the best chance of getting the timing right, and achieving a successful, profitable business exit.