Picking the right time to sell a business should be a matter of personal feelings, not prices.
There are very few entrepreneurs who would say that they sold a business at the right time. Many will tell you that they sold the business and then discovered that the market improved and they would have received more if they had hung on longer. Others will tell you that they sold the business after the market peaked and received less than they would have earlier. So when is the right time to sell your business?
Economic cycles are somewhat predictable, although few economists would be willing to state exactly when the downturns will occur. Layered on top of general economic cycles are industry trends which can confuse the picture. This is further complicated when you try to predict the possible future performance of the individual firm.
There are numerous internal and external pressures that can influence both short term and long term profitability of any business. For most businesses, the future cannot be predicted with any degree of certainty. You only have to read the daily financial press to see how often public corporations miss or exceed their forecasts.
You might argue that you run a very effective, growing and profitable business and that you should hang in there for a higher valuation however you would be overlooking factors beyond your control. Recall the impact that the terrorist events of September 11th and the Bali bombings had on sectors of our economy. Natural disasters are unpredictable but can devastate sectors of our economy. Basically, no matter how well you manage your business, you can still be seriously impacted by bad luck.
Your business can also be seriously effected by new competition, the loss of key employees, a major cost imposed by changes in regulations or by a major customer being acquired and switching to another. Business is about risk. You can sit in there and take the risk of the business increasing in value or you can sell out and take whatever value has been achieved to date and then think about taking it easy or putting some of the money back into a new venture.
Many business owners are concerned about whether they will have enough funds to finance their retirement and how they will spend their time. Imagine how sad it must be to get to retirement and find that you left it too late and you ended up with a fire sale. Sometimes it is better to take what you can and have the comfort of having the money in the bank. You can always work for someone else or spend your time working in the not for profit sector as a volunteer.
The bottom line - you probably have an equal chance over the next several years of growing the business or suffering some form of setback. Predicting the state of the business in the next few years should not be the major determinant of when to sell the business.
First, look at your next best alternative. If you currently take $150,000 in benefits from the business, what could you earn if you became an employee? Lets say, $90,000. After tax you are worse off by about $30,000. If you could sell the business and pick up $300,000 net, it would take you 10 years to equal that. If the net proceeds were greater, this may mean a good standard of living for the rest of your life. Take the money!!
Alternatively, you might be bored or the business may have outgrown your ability to manage it effectively and the business may be suffering as a result. Not everyone is suited or has the desire to manage a larger business. Your skills may be more effectively employed by selling this business and starting again.
Many entrepreneurs are best at business creation where their passion and energy are best utilised. They are often not good at the detail or the day to day management. If you are not having fun any more then sell out and start again.
Even where the business has considerable potential, you may not be the right person to manage the business or you might not be able to capture that potential. Every business has to change dramatically as it grows in order to cope with the increasing complexity of the operations. You may not want to manage a more formal and more bureaucratic business.
At the same time, the potential of the business might be limited by your ability to manage or to finance the growth. Sometimes it is better for the business and for its employees to sell out to a firm that can better exploit the potential and perhaps offer the current employees better career prospects.
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