Timing Your Big Business Exit
Knowing when to exit your business is challenging, especially with so many factors at play.
We often get asked “What’s the best time for me to exit my business?”
There is no easy answer. Making the decision to sell your company can be incredibly complex. And beyond your company performance, there are many factors that can impact your exit value dramatically.
Below we discuss some of the most important factors.
The first factor is your personal bandwidth. Ask yourself: “Am I completely energized by my business? Am I already tired or burnt out?” If you are already burnt out, then staying in the game may hurt you more than it will help you.
The next factor is your age. Unpleasant though it is to contemplate, the older you get generally the lower the value of your business. Buyers view age as a risk because beyond mortality, if a business owner is past retirement age they may not want to stick around to help the buyer effectively transition the business.
The Stage of Your Business
The stage of your business can be important to business value as well. Whether you are a startup, a growth company, a mature, or a declining business can materially impact your exit valuation. If you are a growth business, you will likely get a higher multiple versus a business that is mature or declining.
What is happening in the market can also impact your value dramatically. If there is a robust merger and acquisition cycle and plenty of easily available capital to finance transactions, this will likely contribute to a higher valuation multiple. If the money supply is tight like during the 2008 financial crisis, it was hard to get financing no matter how great your company, and as a result the valuation multiples came down.
Seasonality and Cyclicality
If your company revenues are seasonal or cyclical this can also impact your sale value. For example, if you are a ski resort tha is selling after the busy season has ended or a business that is very dependent on commodity prices, your valuation will likely go down.
Last but not least is business-for-sale inventory. Over half of America’s businesses are owned by baby boomers. The oldest baby boomers are retirement age and will need to exit over the next 5-10 years. This is expected to be the biggest business sell off in the history of the US. This will drive business sale prices downward and can have huge consequences on your business net worth.
With all these factors, what is the best time to exit your company?
Beyond the points we have already talked about, to get maximum value you should have 3 years of financials with positive trend lines on revenue and profit growth.
If you do not have three years of positive growth, do the best you can starting now.
Get yourself a competent advisor. If you have time to get your company back on track, lay out a game plan. If you do not have time and simply want to sell, then at a minimum you should lay out a plan to reduce the risks within your business to improve its sale value.
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