As a business owner, the right time to sell a business is difficult to determine. There are many factors beyond one’s control that could affect the ultimate selling price. Some factors that could affect the selling price include: the entry of new competitors, adverse economic conditions, new technologies, or loss of a major customer.
What is the right time to sell a business?
There is also the emotional factor of letting go of one’s business. The business owner has spent countless hours and made many sacrifices while building the business. To let go of it now requires the confidence that the business is in good shape to be sold and to let someone else succeed with it. There is an added incentive to make sure that the business is running well at the time of sale if additional amounts will be paid to the business owner upon the business reaching certain profitability targets after being sold.
Planning the sale of a business can take 3-5 years
The business owner can control the steps taken to plan the eventual sale of the business. Planning the exit from a business is a process that can take 3-5 years to successfully complete.
Some of the questions that need to be addressed during this time are:
- Will the business owner sell to senior management, an outside strategic buyer or to family members who are already working in the business?
- Are the proper structures in place to maximize after-tax proceeds from selling the business, including maximizing the use of the capital gains exemption on the sale of qualified small business corporation shares?
- Are there opportunities in place for income splitting with other family members?
- Will the net proceeds from the sale of the business be sufficient to maintain the lifestyle to which the business owner has been accustomed?
- As for lifestyle, what does the business owner plan to do now that running and building a business are no longer top priorities? There are numerous options, such as starting or buying another business, getting involved in philanthropic endeavours, consulting or sitting on corporate boards or increased leisure activity such as travelling or spending time in an idyllic setting by the sea or mountains.
It is easier to sell a business and realize top dollar when there is a plan in place to exit the business. The business owner should be mindful to avoid the trap of expanding an already profitable business just prior to sale, where growth is the main reason for such a move.
Having a plan in place and setting a deadline is key
Having a plan in place and setting a deadline for exiting a business increase the chances for a happy ending.
