Do you believe it is possible to identify a superior period to sell a business?
The correlation between timing and performance is a key factor when deciding to sell a business, as it can influence the eventual selling price. Examining this relationship is essential in order to make an informed decision.
Irrespective of why they are selling, most owners will try to get the highest price possible for their company. The performance of the business, recent and current, is key in determining the price. Thus, it is essential to take a sensible and well-thought-out approach when using this information, in order to set a price that is likely to be accepted and, even more importantly, to decide if now is the right time to sell.
Deciding on the right time to dispose of a business is not always straightforward, especially in a volatile economic climate, however, there are certain immutable rules. This article examines the top three most frequent patterns of a business’s output and offers advice on how to leverage this knowledge to one’s benefit.
1. Performance dropping or sector in poor health.
It is quite typical for business proprietors to wait until their venture is in a downward spiral before they attempt to sell it. Though the drawbacks of such an action may be apparent from the outside, it can be difficult for those who have poured much effort into the business to recognize or even acknowledge them.
It is difficult to price a business based on past revenue as the trend suggests that these gains are decreasing. So what are your choices? The first is to set the cost of the business on the most recent fiscal year’s earnings or less. It can be hard to make this determination because of the emotional connection one may have with their business, but this could be the only way to appeal to a buyer. The second option is to continue managing the business until it is shown that the performance is increasing or staying the same. Although this may mean some more years in the business, a consistently performing enterprise is more probable to be sold than a declining one, even at the right price.
2. There is a slight variation or persistence in the performance of a stable industry.
When a business is achieving success, it is likely to be sold at a price that is based off of the average of the last three to five years’ profits. As such, if you are selling such a business, it is imperative to take care while it is on the market, as it may not be a speedy sale. Additionally, the strength of consistent businesses is the promise of secured income, so if profits experience a downturn, the attractiveness of the business will diminish.
For two successive years, the driving force of the business has been weakened. Many enterprises in this situation have not been sold since the proprietor began to decelerate their endeavours before the sale of the business. The final 100 metres in a marathon can be the most pivotal.
3. Enhancing outcomes in a dependable or ascending business sector
Businesses that are in a period of growth are usually the most attractive to buyers, as they tend to sell faster, generate more inquiries, and be sold for a higher price. Oddly enough, this is when owners are the least likely to part with their business. This isn’t necessarily a bad thing, as if everyone sold their business at the first sign of growth, no one would make any money. The point is, if you’re thinking about selling, don’t wait until your business is in a state of decline, which is the least desirable to buyers, to “cash in”. Potential buyers are willing to offer much more for increasing profits.
When it comes to assessing the value of a business, the profits accrued over a limited period of time are used as the basis for pricing. Thus, the timing of the profit cycle can affect the return on investment. Therefore, when looking to sell your business, it is beneficial to take action while profits are increasing. Doing so can result in more potential buyers and higher offers.
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