If you are looking for an exit plan from your successful business, the first question you may ask is, ‘what is the right time to sell your business?’ Is it when you are nearing retirement or when you have a good buyer? The decision goes beyond just that.
The right time to sell a business when everything is going great. This means that your business is in a solid financial state, and the market is also doing well. However, many business owners think that when their business is flourishing, they should wait just a little more.
However, this often lands them on the back foot. Instead of waiting it out, you should seize the opportunity.
Let’s look at the factors that will indicate when it may be profitable to sell your business.
State of Local Economy
You should always analyze the economic condition before you decide to sell your business. A recession is not a good time to sell your business, even if it may be out of desperation. Potential buyers will understand your weakness and negotiate for a lower price.
Since the financial ability of the general public may also be compromised during an economic downturn, you may not have as many buyers, which will force you to settle for whatever you’re getting, and that’s not ideal.
Instead, it would be best if you waited for the local economy to stabilize. You should ensure that your business is growing along with the economy. It is even better if the economy is forecasted for prosperity. It will help you get more buyers and bag a higher margin.
Financial Condition of the Business
If you want to make a profitable sale, you should ensure your business is ready to sell, i.e., it should be on a financial incline, especially in the past few years.
This factor is important because business brokers will analyze your profit and loss statements, tax returns, and balance sheets from the past few years to determine the current value of your business.
Ideally, your business should have been doing well for the past 3 years. This shows potential to prospective buyers, showing that your business is also set for success in the future.
It is not advised that you wait for things to get even better (financially) than they are at present, as an unforeseen event or hit to the business can occur at any time. For example, COVID-19 was unprecedented and affected the sales and profitability of businesses all over the world.
Another important factor to consider is the current market condition, i.e. whether it’s a seller’s market or a buyer’s market. This will greatly affect the value you can get for your business. It would be best if you strived to sell your business when it’s a seller’s market.
A seller’s market is characterized by a larger number of active buyers than businesses for sale; this will help tilt the odds and negotiation the favor of the seller.
A buyer’s market will give the buyer leverage because the demand would be lower than supply. You should talk to the financial advisors to get an idea of the market in which you operate.
Pending Capital Expenditures
At any given time, a business might have pending capital expenditures. If such is the case with your business, this might put off buyers. After all, no buyer would want to take over a company with expenses to be taken care of.
If you want to increase your pool of buyers and ask for a high sale price, you should take care of any expenditures before you list your business for sale.
Another factor that may affect the salability of your business is the client base that you have been nurturing. The more diverse your client base is, the higher the chances of making a great sale.
Ideally, no one client should account for more than 30% of your business’s sales. Not maintaining this condition can be risky, and buyers wouldn’t be tempted to take over such a business.
If you see your business in this condition, diversify your client base and list it for sale. This way, you will attract a larger pool of buyers.
Contact Lloyds, a business broker in Melbourne to sell your business in a manner that will get you a higher pool of buyers and a sale price that you are content with. You have invested your time, money, and efforts in the business, so you need to ensure that you get the returns you deserve.