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WHEN IS THE BEST TIME TO CONSIDER SELLING A BUSINESS?

By Ryan Kuhn. A Harvard MBA, Ryan founded M&A advisor Kuhn Capital 35 years ago. Since then, the firm has sourced, prepared clients for, and closed hundreds of high-IP mid-market M&A transactions together worth more than $3 billion. This article was first published 6/15/23 under the title When Is the Right Time to Sell a Business? and revised 3/19/24.

Is now the right time for the sale of your business? Or at least a good time to begin preparing to do so? After all, everybody exits sooner or later, one way or the other.

But how to make the right decision about that requires an owner to juggle dozens of interrelated factors.

Various factors ranging from internal considerations like personal goals, health issues, the concerns of family members and those of the company’s management team, to external forces like interest rates, industry trends and technological advancements.

To top it all off, the decision whether to investigate a business sale is also one of the most important decisions an owner can make.

Yet worry not! I break that complexity down into digestible morsels below.Thumbs Up/Down

Of course, advice on this matter isn’t hard to find. For instance, both Forbes and Inc. weigh in. But they and others set out general concepts to consider if you’re trying to decide on whether to pursue a selling process. I take a great deal more granular approach. And it’s in a time-saving bullet format designed to simplify your decision-making.

So just read the items below and give a Yes or No response. In fact, to make things even easier, print this article out, grab a pen and circle your answers

The more you answer a certain way, the more likely you are in the Best Time to Sell zone. Alternatively, if most your responses move in the opposite direction it may be wise to wait for more favorable times.

To Sell or Not to Sell: The Quiz

(Note: Some of the topics listed here will not be applicable to your circumstances: ignore those.)
  • To reach the next stage of growth, you need access to more resources than you have at hand. Say you’re teeing up a world-beating product but nobody knows about it and speed is important. Could potential buyers hit the market faster, penetrate it deeper, and do so at less risk to you? Alternatively, could an investor in your business inject the growth capital you need to move fast enough?
    Yes/No

  • Selling your company could fund an attractive lifestyle or allow you to invest in more interesting business opportunities elsewhere.
    Yes/No

  • Are you bringing less energy and joie de vivre to the job than you did before?
    Yes/No

  • Tech industry developments or regulatory changes threaten your business model. Or a bigger competitor with lower costs is forcing down Lightningasking prices. Or somebody found a way to work around your IP. Whatever the specifics, macroeconomic forces or rising competitors are making life harder, probably for an extended period.
    Yes/No

  • Buyers typically value companies with growing sales more than those with flat or declining sales. So ideally you want to exit before the rate of growth slows noticeably (which it will someday). Do you think your sales growth will start to decline in the next year or so but it’s not doing that yet?
    Yes/No

  • You’re uncomfortable with concentrating a large portion of your wealth in your business — too many eggs in one basket. And illiquid ones at that.
    Yes/No

  • You’ve decided to pass on a chunk of your wealth to family members in an organized, tax efficient matter.
    Yes/No

  • Demand for your company’s products or services is cyclic or faddish.Unattractive faddish business
    Yes/No

 


  • You don’t like the direction of the economy, and/or current political or cultural trends.
    Yes/No

  • The “Buffett Indicator” may tell if a country’s stock market is over- or under-valued. It divides the total value of publicly-traded companies by quarterly Gross Domestic product (market cap/GDP). A “fairly priced” ratio is 1.The current US ratio is “significantly overvalued” at about 1.5. That’s the highest on record. Public company values and private company values are correlated. Do you think there’s a 50% or greater chance that your company’s value could decline within the next year?
    Yes/No

  • You’re done proving something. You can point to what you’ve accomplished with pride and feel that the company’s current and foreseeable challenges are less demanding or even mundane.
    Yes/No

  • There’s nobody in sight who has the interest or ability to succeed you as CEO. So for you to put together a succession plan is impracticable.
    Yes/No

  • You’ve received an unsolicited offer to purchase your business.
    Yes/No

  • Your company’s products/services could fill a valuable gap in a larger competitor’s line-up.Missing piece of the acquisition puzzle
    Yes/No

  • Your company owns IP that may be more valuable than its cash flow.
    Yes/No

  • Has the Russell 2000 stock index materially appreciated in the last 12 months? Higher public company stock market returns are positively correlated with higher valuations for private SMBs.
    Yes/No

  • If sales have been flat or declining, can you — or do you know how to — fix the problem in a year or less?Hockey stick growth chart
    Yes/No

  • For older or brick-and-mortar businesses, buyers commonly use multiples of EBITDA to figure value. If you’ve been growing revenue rapidly and thereby driving your EBITDA/sales ratio down, do you expect a stronger ratio in the next six months or year?
    Yes/No

  • Industries go through cycles of higher or lower M&A deal volume and average value per deal. If your industry is currently experiencing a down phase, you’re not sure you have the time, resources, and confidence to ride it out.
    Yes/No

  •  In a related question, are you unsure if you’re patient and young and/or healthy enough to weather a recession as long as five years?
    Yes/No


Now add up your Yes answers. The more of them there are, the stronger your “sell” signal.

More Things to Know

About Buyer Types

For established mid-market companies, the most common types of potential buyers are private equity groups and strategics, but many other types exist. Certain types fit your situation better than others. To see which ones that may be, see my article WHICH ACQUIRER FITS YOUR COMPANY BEST?                 

What M&A and Other Advisors Do

Curious about what M&A advisors do and whether they’re worth it? Check out my HOW DO INVESTMENT BANKERS SELL A COMPANY? And while you’re considering financial advisors, also check out estate/tax planners and wealth managers. Using all three advisor types will give you a sense of how much your business is likely worth, how to structure a transaction to minimize taxes, and whether the sale will reach your exit goals.

Last Thoughts for the Mid-market Business Owner

Deciding when’s the right time to sell your business is always an intensely personal decision. So personal that for some people, no matter how compelling certain facts may be, they will never sell or close up shop till eventually forced to do so, sometimes under less than fortunate circumstances.

There are many reasons for owners to feel this way: they don’t know what they’d do if they stopped working; or they don’t think anybody else can do a better job than them; or they like being the boss; or they can turn things around given more time; or they feel they can realize the full potential of the business without outside help. All these arguments can be correct and all are the right of any owner to make.

But sometimes they underestimate the value that new partners can contribute to their wealth and happiness. That’s often because as independent-minded entrepreneurs they may not have had much contact with peers, or they have not been exposed to sell-side deals that can in fact deliver to them much of what they desire after all.Thinking Man

At any rate, I hope this little quiz sparks some thinking about what to consider when deciding when or if to sell, or whether to sell entirely or partially.

If you’d like to chat with me about questions unique to your business and circumstances, use our Contact form. And like you, we here at Kuhn Capital aren’t interested in starting up a premature sale process.

© 2024 Kuhn Capital, Inc. All Rights Reserved

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Ryan Kuhn

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03/19/24

“Ryan Kuhn is the founder of Kuhn Capital (bio). This article is not the product of AI. AI is a product of this article.