There are usually two reasons people sell their business, lifestyle or financial.
Common Lifestyle Reasons:
- Retirement
- Health
- Relocation
- Industry Burnout
The reason these are called “lifestyle” and not financial, because the sale of the business is motivated by lifestyle circumstances and the return on the sale will most likely be less than the owner was initially earning from the business. In many circumstances the owner has less of a choice on the timing.
Although you may want to hold off on retirement for a couple more years, you may be missing out on a higher market value for your business. Sale price is a major factor in selling and fluctuates constantly. The money you gain from selling will have to last you through retirement, if you miss out on the opportune time to sell, you may be faced with the difficult decision on whether to lower your cost of living or reduce your retirement years.
What determines the worth of a business?
- Earnings – Cash Flow
- Market Multiple – How good the industry market is currently
The best time to sell is when both are high
Selling a business takes time. A typical deal duration is usually 6-9 months. During this time the buyer is able to evaluate the current market, assess earnings, revisit past figures, and analyze trend reports to ensure they are making a fiscally responsible decision.
If a recession occurs the market multiples decrease, therefore the number of potential buyers decrease. Although you can never be certain when a recession will hit, historically we are long overdue. Waiting to sell can be detrimental for your overall end goal, you never know not selling could mean you’re forced to work for many more years.
