Should you sell your business after its most profitable year?
A question we hear frequently here at Core Business Brokers, is “When is the best time to sell my business?” Now, there is no black and white answer to this question. However, the best time to sell your business, is when your business looks the most attractive to potential buyers. Does that mean you should sell your business after its most profitable year? The short answer is “yes”. Let us explain
What makes an attractive business?
When looking to buy a business, buyers are looking for the following components:
- a well-functioning business in the industry of choice
- proof of historical sales – important with rising trends
- a loyal customer base and ideally recurring income, depending on the nature of the business
- prospective future growth – any buyer wants to feel comfortable that the business will continue to grow so that the future income will be higher than the historical profits on which the business price is based
- proof of profitability via a due diligence. This will include the normal adjustments to normalise the profits provided these adjustments can be proved in the DD.
Now here comes the catch-22…
Why would business owners sell a business that is doing well?
There are many reasons why business owners choose to sell their businesses. From interest in new ventures to personal financial hardship to retirement plans, choosing to sell is a personal choice. If a business owner finds themselves in a position where selling is not time-sensitive, the best time to sell would be directly after the business’ most profitable year. You may ask yourself, “why!? If the business is doing so well, the owner would surely want to stay and reap the rewards of their hard work!” And you’re not wrong. Many owners find it tough to part with a well-performing business. This is why many do not sell at the most opportune time.
Owners will often say “I may as well keep the business for another 3 years and earn the profits for myself and then sell”. This is always true for any seller. Only the business owner can decide when the time is right to sell. They should also be prepared to remain for an extended handover period in order to transfer knowledge and relationships to the new owner. This is especially important if the owner was the “key” employee in the business.
But as we mentioned earlier, if you’re not constrained by time, selling when you can show proof of a business’s profitability (in the most recent financial year) makes the business look extremely attractive to prospective buyers. Think of it this way, would you get more interested parties looking at a run-down house or a recently renovated house that looks much more expensive? Not only will you get more interest, but you’ll also no doubt sell for a higher price! The same principle applies to business sales. However, be sure you can show a buyer that there is still plenty of upside in the business which should flow to the new owner with a successful transition.
Looking to sell your business?
If you’re considering selling your business and are unsure as to whether it’s the right time, contact Core Business Brokers today. Our team of experienced business brokers in Sydney have helped facilitate business sales in all industries in all stages of their business lifecycle. We will assess your historical performance and future growth prospects and help plan your sale process. We’ll also discuss the current state of the market to provide honest advice when it comes to selling your business.
Contact Core Business Brokers today on (02) 9413 2977, or email Roy directly at [email protected] or Rad at [email protected]
