A very good question indeed!
The simple answer is “when you don’t need to”.
Let’s examine what that means in practice.
A seller who is under pressure, be it financial, emotional, health-related or due to a deadline will not achieve the optimal value due to them.
When a business is doing well and has a bright future is when it is most attractive to a buyer, but for too many sellers it is when they ask themselves why they should sell as they are doing very nicely.
The world of business is inherently risky and uncertain and just because you are making money now it does not mean you will be doing so in a year’s time.
The decision to sell is typically taken because of an external factor, commonly the wish to retire.
It’s a big decision, a life changing one.
Somebody earning good money from a successful and well run business will often question themselves as to whether they really should retire, simply because all is well in their business.
It does not take a genius to conclude that pushing off retirement is not a sound move.
If you have decided to retire, then retire!
But what if your business needs sorted out first, such as fixing known problems or perhaps taking decisions that could increase its value significantly?
This is where it becomes a little more complicated, especially if you are at a stage in your life where you have not got the energy or drive to implement the necessary changes. It could well be that now is the time to sell as things will only drift downwards but you simply cannot countenance selling decades of hard work at a low valuation.
I am fond of repeating my mantra that selling a business is a journey not a destination, meaning that once retirement is on your radar it is time to start planning properly, even if it is a 5 year timeframe, because if you do nothing those years will creep up on you faster than you might imagine.
Let’s examine the areas that typically need addressing, either problematic as they stand or that could benefit tremendously from being taken to the next level. These are things that do not resolve or play out in weeks, but rather in a timeframe of months or even years.
- Staff problems
- Compliance
- Adverse publicity
- Business development
- Online presence
- Reshoring
- Legal problems
- Supply chain
- Accounting
- Debtors
- Borrowings
- Technology
- Productivity
- Structuring
- Owner reliance
Of course the above list is not exhaustive nor are the items mutually exclusive, but the single overall factor that makes all the difference between getting significantly more for your business is owner reliance.
If YOU are the business what happens when YOU are gone?
Professional practices with sticky recurring income do sell and there is a clear plan for handover, but outwith such a setting buyers of a typical business want to see that it runs without daily input from its owner, preferably with a management structure in place.
All too often business owners who turn up every day from 9 to 5 , fail to appreciate that while they may have a really good business, it depends on them too much. Of course they go on holiday and certain staff members will “mind the shop” but the reality is that without their input the business would struggle to grow and likely drift.
The rest of the list present their own challenges and are part and parcel of business life but fixing issues, especially fighting on multiple fronts at once, takes time and money.
When a business changes hand it is vulnerable so buyers want to ensure that they are not being handed a poisoned chalice in the format of multiple problems that the previous owners should have dealt with.
Often an employee grievance is left unresolved but the person involved will be patiently waiting for the right moment to leverage their unhappiness to the maximum, especially if they play a key role. What’s worse they could be a lightning rod for others. After owner dependency, employee matters follows a very close second as a critical fix. That moment will be when you sell!
So as you can see there is plenty of food for thought as you consider retiring!