Planning to sell your business can seem to be overwhelming. How much is the business worth? Who will buy the business, and what happens to my employees? When should I sell the business? Well, there is no definite selling season that every company abides by. The bottom line is that the best time to sell your business is when you and your business are ready.
Typical Buyer Behavior
Sure, there are common periods of the year that give reasons to sell. For example, some believe that during the first fiscal quarter of the calendar year, investors and potential buyers have a strong motivation to start the year right by looking at businesses that will help them achieve their annual goals.
However, if you are not ready, it likely does not make sense to try and meet this artificial deadline. Selling a business requires a lot of effort and time. If you want to get the most from your business (and rightfully so), set your own timeline to prepare yourself for the sale. If you have put in the work to prepare, there may not even be “bad timing” to sell your business.
Importance Of Trends
Knowing about market trends works in your favor but should not be the primary reason for your decision. Therefore, understanding what makes selling favorable during a certain period of time may help maximize your profit.
So, if there is no ideal time to sell in a year, what should be the basis? You may be asking yourself, “When is my company ready to sell?” and we are here to help you clarify certain things.
Factors That Attract Buyers
Generally speaking, potential buyers are attracted to a company’s profitability and longer-term growth opportunity. They want to buy at a strong time during your company’s lifecycle versus a particular month of the year. In addition to articulating what makes your business special, having accurate and up-to-date financial records is necessary. You will want to have at least three years of profit and loss statements, a current balance sheet, and tax returns for the past three years. Additionally, it’s important to have documents related to the formation of your business entity (incorporation documents) and agreements such as leases, loan agreements, and customer contracts. Having these documents shows a prospective buyer that you are serious about selling your business and ready to engage in the due diligence process.
Other Tips For Preparing
In addition to documents, you will eventually want to prepare your employees when a transaction is imminent. They will want to know what changes to expect if they will retain their jobs and any anticipated changes to health care or other benefits. Ensuring you have this covered and will help with a transition period gives a buyer more confidence about the longer-term prospects of the business.
The bottom line is different times of the year support the different cycles of your business. So while you are determining the cycle that would attract the most buyers, having proper and complete documentation for your business and investing in a business valuation would be great next steps.
This valuation gives you and your potential buyer the fair value of your business. During your negotiations, this can be your ally that helps explain your asking price. Having business valuations every year or so also helps you in keeping track of the growth of your business and to continuously improve.
Lastly, having a business transition plan is essential for you, your employees, and your business as a whole. It is your guide for any situation down the line so that there is no cause for panic and rushed decisions and so that your business will keep on running. It really pays to plan ahead!