When Is the Right Time to Sell My Business?
By: Justin Farmer
One of the most common questions we get from clients or potential clients is: When is it the right time to sell my business? Before I can answer that question, I need more information from you. There are three questions I have for my clients in return:
1. How much longer do you want to work?
Are you really excited about what you’re doing, are you passionate, do you not want to hang it up because you have a goal to work to a certain timeline for retirement? How much more time do you want to actually work?
2. How much longer do you need to work?
This is a financial question and probably the most important that most of my clients can’t answer right away. That’s something we work on together with a financial advisor or CPA, whoever is advising you on your long-term retirement strategy. How much more money do you need to make in the business before you actually retire?
3. How long do you want to remain as part of a transition?
This refers to when you actually sell your business and a new owner takes over.
Once you have identified the answer to those three questions, we have a timeline and we can work backward from there. So with each of the questions answered, I can predict where you are.
Let’s look at each question in deeper detail:
How Much Longer do You Want to Work?
Most people come to us because they’re reaching some level of burnout. If you’re a physical therapist, it’s very taxing to treat people, quite literally upon your hands. If you’re a lawyer, sometimes you are just ready to stop battling it out with opposing counsel. With CPAs, every tax season we get an influx of inquiries because you’ve just gone through a battle. Therefore, how much longer you want to work typically starts to wane at the end of someone’s career. You’re ready to stop being a business owner and stop being that practitioner on a full-time basis.
How Much Longer do You Need to Work?
The second question is the financial question. Most people can’t answer how much longer they need to work because they haven’t actually factored in the income from selling their business into their retirement plan. I’ve talked to many practitioners who say – I need to work two or three more years because I make X amount of money a year, and once I’ve reached X times 3, I can retire. But what if we could get you X times 4 just by selling your business and you get a couple of years worth of employment income as you transition out. That’s when you can literally see the lightbulb going on.
So this is the most important thing you need to understand: you actually can get cash for your business and that should factor into your retirement plan.
How Long do You Want to Remain as Part of a Transition?
Generally speaking, people will say, “Well I don’t know, I’m flexible.” Some people want to move to Arizona in six months, some others would actually like to wind down over a two, three, four or five year period. All of those options are available to you, they just change the deal structure. Furthermore, the buyer needs to understand how long they have you as part of their transition plan. Ultimately, we tell our clients that the right time to sell is generally within 2 years of retirement. One year is taken up by the pre-deal timeline: it takes us about a year to sell your business. Then there’s generally a one-year post-deal timeline or post-closing timeline where you’re winding down your part of the business and transitioning it over to the new ownership.
One other thing to consider as you’re looking to sell your business and looking at timing is your long-term goal and whether you want cash upfront or you want to carry the paper and be the bank yourself. The lending market has been really seller-favorable over the last few year, but that changes at any given time. So as you’re considering when to sell, you must look at the market and then also look at your own deal structure. These things can help you decide on the timing of when you want to actually sell your business.
There’s much more that goes into figuring out the answer to “When is the right time to sell my business?” Every client is different, there are multiple factors that you need to consider personally, from your family, your business partners, your long-term goals. It’s really choosing your own adventure.
Contact a Business Broker Today
I would love to hear from you, to hear your story, talk to you about your specific business and your goals and ultimately decide what the best timeline is for you and whether it’s the right time to sell your business today or in the near future. Call us at (253) 509-9224 or contact us online to learn more about how we can help.