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When’s The Best Time To Sell A Business? M&A Experts Answer

February 11, 2023

A Quick Guide To The Best Time To Sell Your Business In 2023

Over the past 30 years as lower middle-market acquisition & merger specialists we’ve been asked the same questions countless times: when is the best time to sell my business?

The short answer? Sell the business when it’s doing its best!

The long answer is, of course, more complex. In an ideal world a business owner should sell when the macroeconomic conditions are positive, their particular industry is doing well and they’re ready to retire. But in reality life and market/industry cycles hardly ever coincide.

You may miss peak market and/or industry cycles if you wait until retirement age to sell your business. Conversely, there are risks to taking a business to market if you’re not personally or structurally ready to sell.

So what to do? Benjamin Franklin famously said: “By failing to prepare, you are preparing to fail”. Follow his sage advice and assess your preparedness for selling your business. Here’s a handy six-point checklist to help you do just that.

Once you’ve checked all six factors off, the next step is to educate yourself on when’s the best time to sell your business based on internal and external factors.

Internal Factors To Determine When To Sell A Business

1. Sell Your Business When It’s Strong

Different buyers look for different attributes when seeking new acquisition opportunities. While some may look only at historical growth data, others may look at what they can bring to the business to enhance/grow it rapidly. And then there’s the outlier buyer, a rare but rewarding breed that will pay 20-50% more than other buyers if they see unique value in your business.

‘What I thought would be a deterrent to buyers turned out to be the very thing that attracted them to us’
– Tom Allen, Virtual Technologies Group (read his success story)

No matter the type, all smart buyers have one thing in common: they’re looking to buy for the future. As such, the best time to sell a business is when the business is showing the best potential for the future. This can be a steady but solid growth record, plans for expansion with measurable return on investment, a low risk versus profitability ratio, high investment potential or purely that the business is a “hot commodity” in terms of industry or broader market trends.

Bottom line: if your business is at its strongest in terms of future potential, it’s a good time to sell.

2. Sell Your Business When It Needs New Leadership

It’s not easy to admit that your business has outgrown your capabilities. Instead of viewing this as a negative, take pride in the fact that you have grown the business to a point where it needs leadership with a different or more diverse skills set to take it to the next level.

‘We realized that, for our employees and our clients, we really needed to go to another level, and it was a level that we just couldn’t take it to anymore’
– Tim Shea, FRG Waste Resources (read his success story)

For example, you may have built your company on the back of your exceptional sales skills, starting out with a dial-up phone back in the early ‘90s. But today you have a crack sales team that uses professional sales analytics tools and no longer needs your hands-on leadership in this sphere of the business. You’re left doing the stuff you may not like or don’t have the acumen to manage, such as dealing with complex human resources and other operational issues.

You have two choices here: invest the time and effort needed to upskill, or hand over the baton to new (and dare we say, younger and more energetic?) leadership.

Remember: realizing when it’s time to handover the reins is not a failure; it’s strategic succession planning undertaken by strong leaders.

3. Sell Your Business For Strategic Succession

Even if you’re still fit to hold the reins, a good leader plans for the inevitable handover as retirement age approaches.

‘I’ve gone through so many unexpected surprises. It was time to just not to have to worry about that anymore’
– John Norgard, Precision Tooling (read his success story)

Therefore if you’re within 5-10 years of retirement it’s advisable to keep an eagle eye out for the perfect time to sell.

External Factors To Determine When To Sell A Business

1. Sell Your Business When The Market Is Good For You

Previously we would have said to lookout for low interest rates and strong macro-economic growth because it is easier to sell when the overall financial market is healthy and obtaining finance a relatively easy proposition. While that has not fundamentally changed, the market events of 2022 (and beyond) have shifted this landscape somewhat. Despite high interest rates, fears of recession and global market volatility, the mid-market mergers and acquisitions market is holding strong. Why? There is ample liquidity in the market and a shortage of well-performing companies in the United States and Canada going to market.

‘Because we were growing rapidly in our performance and had weathered the pandemic, we ended with a price that was nearly 50% greater than the first deal we pursued’
– Randy Conrads, RedWeek (read his success story)

The lesson here is to keep track of how the mid-market M&A market is doing and whether there’s more demand than supply, particularly for your industry.

2. Sell Your Business When The Risk Outweighs The Rewards

Timing is everything when it comes to selling your business, and this includes timing your exit in terms of appetite for risk and/or the time, energy and focus it takes to keep up with the ever-changing demands of the market.

‘We either needed to scale back what we were doing, step back and maybe take on smaller or different opportunities, or go out and find a partner that could effectively help us to grow and scale the business beyond our own abilities’
– Jess Baker, GRNE Solar (read his success story)

For example, if there’s a big tax hike about to hit your industry, a fundamental market shift that’s going to make business riskier or increased demand that necessitates a rapid expansion, then you may want to consider whether you have the risk appetite and/or stamina to stay in it for the next 5-10 years. If not, it’s a good time to sell!

3. Sell Your Business To Cash-In On Investment

Whether you started the business as a pure passion project or whether you built it up with a view to sell for profit, there comes a time when every business owner needs to consider when the best time is to cash in on investment to ensure you can comfortably retire, or have enough capital for your next venture.

‘I had learned many years ago that once you hit a million dollars in EBITDA, that’s the time when you can turn the business into a sale. So I was watching that EBITDA number for many years and I was calculating when I would get there’
– Daniel Gordon, LandCare Associates (read his success story)

The external factors to consider here include whether your business currently has a substantial market share, if it’s sought after by industry competitors and/or investors and if the market conditions are the best to get you the highest price and best fit for your business.

How To Sell Your Business: The Next Steps

If the above internal and external factors add up to make this the best time to sell your business, what should your next steps be?

The first is to find out how much your business is worth by consulting an expert. A good business broker or mergers & acquisitions expert will not only calculate your business’ EBITDA (Earnings before interest, taxes, depreciation and amortization – the measure of core corporate profitability) but will also take into consideration external market factors in order to provide a fair and market-related asking price for your company.

The next step is to find the right partner to help sell your business. Follow this six-point checklist to find the partner that will work best for you.

Need more expert m&a advice? We provide free valuation to companies with an annual revenue of between $5 million and $150 million. Contact us here to make an appointment.