Now’s a good time to sell your business if…
Whether it is a good time to sell a particular business or not depends on a wide range of factors.
Ultimately, the more convinced a buyer is about the ability to make future profits, the more interested they will be and the more they will pay.
Here are the factors which demonstrate future potential and excite buyers.
The more your business depends on you, the harder it will be to sell and for you to actually leave.
If buyers are worried that the business will not continue to perform without you, this will be reflected in the offer they put forward, if they do put forward an offer.
You want to be working ‘on the business’ not ‘in the business’, with your team running the day-to-day operations and you setting strategy, troubleshooting issues and ensuring that the business and the people in it keep performing.
When you sell the business, you want it to be profitable, showing growth in sales and profit over the last few years, as well as a strengthening gross margin.
If the business is loss making, buyers will assume that it’s a fire sale and the price they offer will reflect that.
Demonstrate predictable future income. Contracts for the delivery of products or services into the future are always an attractive feature, with the longer the contract, and the longer the relationship has been in place, the better.
A buyer won’t want to think they’re buying at the top of the market, so demonstrate that there are opportunities for future growth.
The business should also be able to demonstrate that it is not dependent on any one factor for its success, for example having one or a small number of customers, individuals, sectors, geographies, etc. Diversifying your risk makes your business more attractive.
Sectors tend to go through cycles. Hot sectors tend to be those that can demonstrate good visibility of income (e.g. child care or elderly care) or those that are in a growing market (e.g. e-commerce).
Those businesses that cater for the certainties in life, such as death and regulation, also attract buyers too given the permanence of the market they operate in.
The wider economy
Buyer appetite is also affected by what is happening in the economy, both in terms of growth and the availability of funding.
Strong economic growth makes buyers positive about the future. Availability of funding brings more buyers into play because they don’t need to have the funds to hand to make an acquisition. Both of these aspects also drive higher prices.
Not every business will tick all of these factors, but the more you can tick, the more attractive your business will be and the higher value it will command. The market is currently buoyant and businesses that meet many of the criteria discussed above are selling well. If you’d like to discuss exit planning, please connect either your local Azets office or me and we’d be delighted to discuss your options with you.
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