Selling a company may seem daunting to business owners, especially if it’s for the first time. Whether you initially stepped into the role of a business owner knowing you wanted to sell your company or you have received an unexpected offer, making a beneficial sale requires knowing the value of your company and recognizing when it is a good time to sell.
So, when is the best time to sell your company? Is it the minute you have built the minimal viable product? Is it only once you think it has reached its peak potential without making drastic additions or redevelopments? What if you weren’t planning on selling your company, at least not any time soon, but you have received a good offer for it?
Ultimately, that deciding moment is going to be different for each company, as no two companies or their situations are exactly the same—but here are a few milestones where it might be a good time to stop and consider selling.
The Plan All Along
If you created your company with the intention of building it up to sell, be aware the process can take between two to five years. Before you sell, you will want to build your company to the point where you can prove it has made the greatest amount of profits within the previous two to three years to make it optimally appealing to potential buyers.
As you build your company with the intention to sell, make sure you have a good team helping you with the planning. Collaborate with professionals who will help you sell your business for the price it’s worth. Work with valuation specialists who will determine a realistic price for you to sell your company. After all, your prospective buyer will undoubtedly have a team trying to get the best deal on their end as well.
If you are aiming to sell your company, but it is not generating as much profit or growing as fast as you hoped it would, the planning process can give you some time to improve your financial conditions so you are ready to sell when the tides of profitability turn.
A Prosperous Moment
Many business owners make the mistake of selling their companies when they are on the verge of going under and desperate. Companies that are failing will not be valued as high as those that are succeeding. During these circumstances, potential buyers will try to offer you the lowest price possible. Additionally, it can be harder to sell when your finances are floundering—research shows that 31% of companies do not sell because they have bad financial health, as opposed to companies that are on a trajectory to good revenue growth.
Clearly, it is better to sell your company when it’s at the pinnacle of success rather than when you’re drowning and merely trying to avoid going down with the ship. Investors usually want to purchase companies that are at the peak of sales.
Some trigger events that can spike a prosperous moment include a launch of a unique product, successfully employing marketing tactics to better position products and services, or building strong relationships with customers to develop a loyal customer base. All of these events can increase profits and prepare a company to become a target for potential buyers.
Also, it’s always a good idea to keep an eye on the market. If your company is experiencing growth, chances are the industry is also doing well. Assess your market by taking into account the market size, growth rate, interest rate, and economic trends. During good market conditions, your company will be valued at a higher price point.
A Good Offer
How do you know when you have received a good offer? Get your company valued by highly-skilled valuation specialists who will calculate the optimal value for your company. If the offer from the prospective buyer is higher than that value, determine how long it would take you to make your company worth as much as the offer. If it would take two or more years to reach that value, then you know you have received a good offer.
If you receive a tempting offer, it’s most likely because your company is blossoming and a prospective buyer has noticed. Your company has made noticeable waves in your market, has built a reputation, or most importantly, has offered exceptional services or products.
Selling your company can be a tough decision to make, especially if you have dedicated years of your life to building a valuable brand and were not planning on selling any time soon. But if you base your decisions on sentimentalities rather than business sense, you might miss out on an incredible opportunity.
Has the Right Time Come Along?
Knowing the worth of your company plays a fundamental role in the sales process. Working with valuation specialists helps you understand the process and why your company is valued at that price.
Valuing your business is a highly-pivotal step that can help you decide whether you want to sell your business or not, depending on whether the value that is calculated is near what you anticipated or not. Additionally, valuation specialists who are engaged throughout the process can help their clients develop strategies to succeed when negotiating a sale.
Scalar’s experts strive to understand each client’s unique situation to apply the correct methodologies that will result in the most accurate valuations. As our team members perform valuations, they calculate risks and develop plans of action for business success.
If you need valuation services, you can request a complimentary consultation or call us at 385.831.1010.