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Stable Market
Every owner wants to sell when the time is right. In selling a small business, the right time depends more on the owner and the business than on external events. Unlike stocks, bonds and real estate—which rise and fall with interest rates and other factors—the market for small businesses tends to remain stable.
Best Time for the Owner
Since a business exists primarily to benefit its owner, the best time to sell is when it is best for the owner. Owners tend to sell when their lives change significantly—through retirement, burn-out, illness, divorce, financial difficulties, or other events. These events influence when the owner should sell his business.
Price Depends on Cash Flow
The final sale price is determined by the Buyer and Seller in the free market. In deciding how much he is willing to pay for the business, the Buyer looks primarily at its cash flow, which is the return on his investment. A Buyer will often pay more if the Seller provides financing, because it enables the Buyer to further leverage his investment to buy a larger business producing more cash flow and an even better return on investment.
Sell When Business is Good
The owner should try to sell when business is good. Profitable growing businesses are much easier to sell than unprofitable declining ones. Ironically, many Sellers hold on too long while the business is making good money, then try to sell as it struggles. No matter how much the Seller stresses the successful past and bright future of the business, most buyers are only willing to pay for its present performance. Buyers also like industries enjoying favorable socio-economic trends, fads or publicity. Sellers should be wary of riding a favorable trend for too long, because whatever goes up usually comes back down.
Always a Market
There is always a market for small businesses. Business owners are constantly faced with life events that drive them to sell their businesses. Prospective buyers are also constantly entering the market, driven by own their circumstances--acquisition strategies, corporate downsizing, career change, entrepreneurial spirit, return to the workforce, or the desire for more career control or creativity. Supply and demand tend to remain fairly balanced in this market. When the economy is booming, businesses may be more profitable and attractive, but individuals also have many other employment and investment alternatives. When businesses struggle, more owners may want to sell, but their businesses are less attractive to buyers.
Plan for the Best Price and Outcome
Ideally, an owner should have a succession plan and be ready to sell at any time. It can take several years to years to implement the succession plan. The business sale process itself averages about 8 months for smaller businesses and over a year for larger businesses. Seasonality should also be considered in the plan. A Hallmark Shop, for example, would be worth more just before the holidays, while a tanning salon will fetch a higher price just before the Summer. Planning is the key to getting the best price for the business and results for the Seller.