Timing the sale of a business can be a stressful process. In today's tenuous economy, it's nearly impossible to predict your business's financial future, let alone its value on the open market.
But smart business owners know that timing is everything. Selling either too early or too late can lead to a substantial amount of money being left on the table. So while you won't be able to control the economy, there are certain steps you can take to make sure the timing of your sale maximizes the selling price.
Being ready to sell when that time comes can lead to more interest from buyers, more offers, and ultimately, a higher selling price. So whether you are looking to sell soon or farther down the line, here are some considerations on which you should focus.
Sell at Peak Value
Selling at "peak value" is, of course, easier said than done. Most business owners will find it hard to consider selling when things are going well, but that could be precisely the best time to get out. A growing, expanding, smoothly running business will be most likely to attract multiple buyers, creating an auction-like atmosphere that will often lead to a high selling price.
Too many owners wait until a major customer or key employee is already lost before trying to get out. Buyers will be aware of these types of situations and may use it against you in the negotiation process. The key to getting the most money is selling when the buyer can find few flaws.
While that is the ideal situation, many business owners have been dealing with declining numbers for the past few years, giving them little leverage for a sale. This has created a backlog of business owners waiting to sell, meaning there will be more competition as the economy improves. We are just now starting to see signs of that recovery -- all the more reason you need to be thinking about the timing of your sale.
Even if you don't plan on selling for many years, the time to start building value is now. This includes everything from organizing your financials and improving the physical state of the building, to training capable employees to manage the business in case of your departure. These preparations will prove especially important if an unforeseen personal or business crisis forces a quick sale.
Pick the Right Season
Just as with any industry, your grocery business varies depending on season. Be sure to take this into account as you get ready to sell. You should know better than anyone when your financial situation will look the best each year. A typical business sale takes eight to 10 months. Plan that timeline into your strategy.
As already mentioned, you want your business to appear as financially strong as possible. Make sure that you're hitting your busy season just as potential buyers will be checking details and beginning the negotiation process. And if you’re planning to transition to a new owner, do it during a less busy or important time of year, when the new buyer will have time to learn the business without the potential to make costly mistakes at the outset.
Time the Tax Implications
In 2010 there were many business owners rushing to sell their assets in fear of pending legislation to increase the capital gains tax rate. However, late in the year, the federal government extended the existing tax rates for two years, giving business owners more time to take advantage of lower rates.
The current rate may increase eventually -- potentially in 2013 -- and the hike may have a dramatic effect on the proceeds of business sales. For example, a capital gains increase from 15 percent to 20 percent would increase taxes (and decrease after-tax proceeds) by $100,000 on a $2,000,000 sale.
To mitigate the effect of these tax increases, business owners would need to grow their top and bottom line by an appreciable amount just to stay even. So if you feel emotionally and financially ready to sell within the next two years, now is the time to start talking with your advisors about how to best position your business to maximize the sale price before a potential capital gains tax increase.
Selling a business is something almost every owner will have to experience at some point. Whether you're planning to retire or to start another business venture, it's important not to rush into the sale process. Take your time to plan an exit and make sure your business is heading in the right direction come sale time. As the popular phrase goes, timing is everything.
Mike Handelsman is group general manager for BizBuySell.com and BizQuest.com, two popular online business-for-sale marketplaces. Prior to his online experience, Handelsman began his career in brand management with Procter & Gamble, and also worked as a management consultant with McKinsey & Company in Chicago and San Francisco. For the past 15 years, he has had extensive experience dealing directly with start-ups and early-stage businesses. Handelsman is a graduate of Duke University, and holds an MBA from the Harvard Business School.