It is a Process ... and Never as Simple as Suggested

Selling your business right…quickly and quietly for the highest price when you are ready is not and should not be just an event in a long business ownership.  It is or should be the culmination of an effective process to prepare and position the business for sale to the best potential group of buyers. 

The answer to every business owner's question:  “When is the Right Time to Sell my Business?”  has three primary parts.    The right time to sell is when the business is ready, when the market is ready and when you, the owner, are ready.  Far too many owners address only part of this answer and consequently view the sale of their business as an event that will be driven only by their personal timetable.  Certainly, this can be done and is often what happens, but the results rarely are optimal.

It is important to understand that what you, the business owner, thinks of your business and what you think is it value is not going to determine the results you get in any transaction.  What is important and what will determine the price and terms for any transaction is “what someone with the capability to buy and operate your business thinks”!    It will solely depend on the buyers' assessment of the tangible and intangible assets you have in place and their assessment of the business's future cash generating ability.

(Not to mention the evaluation of the financing source (banks and others) that experience buyers will employ.)

Some business owners are aware of the potential for an ownership transition due to outside drivers such as death, divorce, or disability.   Consequently, it is important to work consistently on improving the business and putting it on a track to be attractive to financially strong buyers.  The corollary to the “three D's” is the unplanned offer by a prospective buyer.   Although this is a significantly more positive event, if the business is not ready to bring the highest price and best terms and the owner is not personally ready for a sale, the opportunity may be lost.

A business is a very complex “product” to sell.  It cannot and should not be viewed as personal residence that can be cleaned up and dressed up for retail buyers.  It is more like a commercial real estate property, that not only cannot be dressed for sale as a residence, since the buyers will be keenly interest in the revenue streams, the future maintenance costs due to deferrals, and the quality of the tenants.  But even that comparison has its limitations.  A business has so many more moving parts; employees, managers, customers, IT systems, marketing systems, product development, beyond the physical facilities and equipment which are the primary elements in commercial real estate.  None of these critical elements can be created or “tuned-up” in a short period of time. But they are the ultimate value drivers.

There is one thing that good commercial real estate buyers do that business owners should emulate.  An experience, astute real property purchaser looks down the road 10 to 15 years to see where the market will be, who the buyers are likely to be at that time, and how to have the property ready.  This is exactly the mindset that every business owners should adopt.   A mind set that focuses on the development of the entire business over time so it is ready when the market is ready and when the business owner is ready.  The process to continuously improve financial performance year-over-year, deploy systems, hire and train a strong management team, and to assure development of a diversified, blue ribbon customer base is the key. 

We refer to this continuous improvement process as “value engineering”… and it is the one of the three that the business own has almost complete control over.   There are many ways to implement the require changes in a business, but there is never any change without concerted action.  A commitment to determine what actions to take and then taking them will deliver dramatically a higher price for the sale of a business regardless of the timing of a sale.  Recognizing the opportunities for particular market timing will enhance the result, but business owners have no control over the market itself, as they do with the preparation process.  

In addition to the clear potential benefits of focusing on a preparation process, when the business performs better, with less effort, the business owner immediately has both results in hand.  Notably improved cash flow can be used to accelerate growth as well as to improve the lives of the employees and the owners.   

Every business will eventually have an ownership transition.  Why not plan and prepare for it in a way that will make it a smooth, rewarding event regardless of the impetus for the transition.  Every business owners should take the time to immediately develop a personal and business plan to get PAST the business exit finish line!  It is not a simple thing to do...but the astute business owner should make the effort early...vs. later!  If you want the gold standard of resources to plan, read (and reread) the international best seller: When is the Right Time to Sell My Business?