Photo by Tyler Harris on Unsplash
When sellers ask us about timing a sale, in one way they are asking the obvious question: how can I optimize my exit? We have a simple answer to that question: you can’t time the market. In hindsight, it’s easy to see trends and how certain industries benefit from certain events, but it’s very unlikely an advisor was sitting with a business owner of a medical mask company in October 2019 saying, “I think we should go to market at the end of Q1 2020, when demand for your product will be through the roof.”
But whether they know it or not, sellers are really asking hidden questions behind the classic, “When’s the best time to sell my business?” question. Let’s look at three of those hidden questions:
“When will my industry multiple be at its best?”
Industry multiples generally stay the same. Sometimes an event will come along that will change how a business operates, as we saw when the Affordable Care Act was passed, and companies that brokered health insurance had to adapt, and quickly. But the multiples on which valuations were based generally stayed the same at that time.
Except in certain rare cases, it is likely that the multiple on which your valuation is based has been pretty consistent for a number of years.
“How can I pay the least in taxes when I sell?”
We appreciate the desire to keep more of your own hard-earned money. But we too often see business owners more focused on tax avoidance planning than on running their businesses. They are busy running boats and groceries and mortgages and vacations through the company and not realizing that banks hate when businesses do that, and it will take years to wash those sorts of expenses out of your business so that you have clean books.
You should be working with a tax professional not only to keep your books clean in the present so that a future sale will go more smoothly, but you should also be talking with various advisors about what your tax approach will be in the case of an eventual sale. The more time you spend planning, the more options you have.
“What do I do next?”
We definitely can’t answer this for you. Sometimes spouses are perfectly aligned on what’s next: they are going to sell their house and travel the world. But other times, one is ready to relax more with pets and grandchildren, and the other one wants to travel the world. We can’t offer marriage counseling (business advising is hard enough!), but we can encourage you to have the “what’s next” conversation with everyone in your life that matters to you. Sometimes they can alert you to things you may have missed.
If you’re asking about a good time to sell your business, it means you’re already open to moving on. We want to make sure you have everything in place so that the transaction can go smoothly and you can move on to whatever’s next, even if that’s staying home and playing with grandkids more. Contact us today.