The famous catch cry in real estate is – location, location, location.
With successful business exits it’s all about getting the timing right. Over the years I’ve seen business owners get very different outcomes, ranging from exceptional to disastrous, often solely due to when they chose to sell.
In my last post I introduced the four “pillars" for getting the best exit deal. Pillar 1 is: Decide the Best Time to Sell.
So how do you get your timing spot on when you sell your business? Here are the four key things that matter.
1. The economic environment
While often overlooked, it should be no surprise that business exits are generally more successful in good economic times:
Buyers are more optimistic and interested in buying businesses.
Buyers are more likely to have, or be able to get, funding to buy your business.
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 selling their business at the peak of a strong growth period.
2. Your industry dynamics
It’s also crucial to consider the dynamics of your industry. Most industries go through periods of expansion and consolidation, technology change, and higher and lower profitability. This often reflects the overall economic environment; but sometimes not.
Your best opportunity to be bought for an attractive price is usually when your industry is in a period of rapid change and bigger players are jockeying for position. Buyer interest is always stronger when larger industry players are trying to bolster their position by taking out smaller players.
Bear in mind that in many industries periods of rapid change only come along now and again – so take advantage of them when they do! If you don’t act in a timely way when an opportunity does arise to sell for a good price it might be some time before you get that opportunity again.
3. Can you develop your business any further?
In my experience, not many business owners have the ability to take a business from the garage to 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 so 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 aren’t yet fully showing.
The key here is to stand back and honestly appraise your skills and the skills of your team to help you reach a view on whether you have the ability to keep rapidly growing your business. This will help you identify the “zone” in which you are most likely to realise the maximum value you can for your business.
4. Your unique circumstances
This is often the most important factor. 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? Importantly, every business owner’s circumstances are uniquely different.
I recommend you regularly take time – 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?
Getting the timing right
Take a few minutes to consider the four factors right now. How’s the economy at the moment? Is your industry growing and/or going through rapid change? Have you realistically added all the value you can to your business? Would it suit you best, personally, to exit now?
Thinking through these questions will give you the best chance of getting the timing right, and achieving a successful, profitable business exit.