Lately, this has become a very common question I receive from owners considering selling their business. I’m sure their initial concerns are about timing the sale with an increase in the overall climate of the business sales market. Although you want to consider all factors when selling your business, the answer has less to do with market conditions and more to do with the current state of the business for sale, as well as the owner’s reasons for selling. Briefly, I will discuss these three factors and how they impact the timing of a sale.
Overall Market Conditions (Not so Important)
Although there have been changes in the business sales market, by carefully studying business sales statistics from the last 10 years* we see that, when considering the final sales price relative to Sellers Discretionary Earnings, there has not been much fluctuation in sales price despite changes in overall economic conditions. The number of businesses that sold for higher prices (between 2 and 4 times discretionary earnings) has not varied more than 7% over the entire 10 year period. Relatively speaking, what sold for a good price (comparative to the Discretionary Earning), in an overall weak economic conditions, brought a similar price for during a stronger economy.
State of the Business (Important)
The current condition of your individual business is a significant factor in timing its sale. Businesses that show a strong track record of steady or increasing sales and profitability will always sell faster and for a better price than those that are in a decline. If your business is up or steady, this is a better time to sell. No matter the global or macro economic factors surrounding your company, if your business is up, the demand for it and the sales price will follow.
Goals of the Owner (Most Important)
The personal goals or circumstances in the lives of the owners are usually the most important factor in timing the sale of your business. Whatever the reason for the sale of the business (distress, retirement or health being the most common), if it is the right time for the owners, it is usually the best time to sell. By waiting or delaying the sale as a result of speculation about current market conditions the owners may be putting themselves in a bad position. I have many sad stories of owners who have underestimated the time to properly market, sell and transfer a business. They waited too long to begin the process and found themselves in a highly compromising situation as they went to sell their company. The amount of time an owner has to sell their company will directly affect the way it is marketed and priced. The more time you have the better. In a worst case scenario, time can destroy the chances of selling your business for a fair price when you are faced with a drop dead date on which to have the business sold.
In summary, as you think about selling your business, all of your goals should be considered, however, it is always better to begin the process early and make sure you have plenty of time to do the job right.
* Biz Comp statistics of over 5,800 business from a ten year period which sold for $ 100,000 or more.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers
I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.
|Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area
Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.
|Joe Sandbank, Esq. - Legal Services
I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.
|Helen Yoo: Escrow & Bulk Sale Services - Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Elizabeth McGovern: Escrow Services - SF Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
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