When Should I Sell My Business? Should I sell my business?

Article Author: Garry Stephensen
Position: Managing Director
Read time: 5 mins

Thinking about selling? Deciding WHETHER to sell your business and WHEN to sell your business are significant decisions. It is a subject that requires careful consideration and planning. There are several reasons why a business owner might consider selling, including:

reaching retirement age as many baby boomers are currently
pursuing other opportunities
facing financial difficulties
requiring capital for expansion
a change in personal or family circumstances

Regardless of the reason, it's important to understand the factors that should be taken into account before making a decision to sell.

As seen in the Financial Review and the Courier Mail.

Historical Performance

The historical financial performance of the business is an important factor to consider. A profitable and growing business is more attractive to buyers and can fetch a higher price. A business that has shown consistently healthy financials, or a rapid trajectory of growth will be attract to acquirers. Market conditions and industry trends should also be considered. An industry that is going through a boom may be more attractive to buyers and provide a better opportunity for a successful sale.

Even if you are years away from selling, you can actually start taking steps now that will increase the likelihood of a successful sale. Maintaining clear and accurate financial records are key to making the sale process smooth and transparent. If your financial records are sub-par, take steps to clean them up. Improve your efficiencies in operational activities to make your business more attractive to potential buyers.

Here's how historical performance can impact the sale price:

Revenue Trends and Consistency - A business with a history of consistent revenue growth is typically valued higher than one with erratic or declining revenues. Buyers look for stability and growth potential.
Revenue Volatility - If a business shows extreme volatility in its revenues due to external factors or mismanagement, this can decrease its value, as potential buyers may view it as a higher-risk investment. For example, during times of economic downturn, alternative exit strategies may need to be explored.
Profit Margins and Earnings Stability - Strong, stable profit margins demonstrate the business's ability to generate earnings after costs. Buyers are particularly interested in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as it reflects operational profitability.
Cash Flow History - A business that generates positive cash flow over time is highly attractive because it indicates the ability to fund operations, repay debts, and reinvest in growth. Also your ability to obtain business finance within Australia may impact how a buyer perceives the trustworthiness of your business' PnL.
Management and Operational History - A business with a stable, experienced management team will typically have a higher valuation. If the business relies heavily on a few key individuals, the risk of a sale is higher, potentially lowering its value.
Owner's Role - If the seller has been highly involved in the business's day-to-day operations, buyers will assess whether they can maintain performance after the owner's departure. This could affect the business's perceived value.

When Should I Sell My Business? Should I sell my business?

Timing Is Everything!

Another important factor to consider is your personal and professional goals. Selling a business is a big decision and should be in alignment with your life plan. Have you considered what you will do in the weeks and months following your liquidity event? What comes next? Your age and health should be taken into account as well, particularly if you are nearing retirement age and looking to exit the business.

Consider the legal and tax implications of a sale. Consult with a lawyer and accountant before proceeding to ensure that the tax and legal implications of the sale of your business will fit with your personal goals post sale.

Timing is an important factor to consider when selling a business. Time can often kill a business deal. Opportunities to sell may come up unexpectedly and it's important to be prepared and have a plan in place should a suitable buyer come along.

When Should I Sell My Business? Should I sell my business?

Finding Buyers

Preparing for a sale is crucial to ensuring a smooth process and the best possible outcome. Professional valuations and due diligence are essential to determining the fair market value of your business and identifying any potential issues that may arise during the sale process. Identifying potential buyers and marketing the business effectively will assist in reaching a wider pool of interested parties.

There are several types of buyers that a business owner may encounter when selling their business.

Strategic buyers are typically companies in the same industry who are looking to acquire another business in order to expand their product line, increase market share, or acquire new technology.
Financial buyers, such as private equity firms, are more focused on the financial aspects of the business and typically have more capital to invest.
Family and management buyouts involve current employees or family members purchasing the business, and Employee Stock Ownership Plans (ESOPs) enable employees to collectively purchase the business.

Negotiating the best price of sale of a business can be complex and requires a high level of expertise. Setting the asking price (with the help of a professional business broker) is crucial. Important factors to take into account include the value of the business, market conditions, and comparable sales in the industry. Handling due diligence and contingencies, such as environmental or compliance issues, is also important aspect of the negotiation process.

Negotiating terms and closing the deal can be a challenging process. Business brokers are of great help during these steps. It is also important to have legal representation throughout the process to protect your interests. Post-sale considerations, such as non-compete clauses and retention agreements, should also be negotiated and agreed upon before closing the deal.

Deciding when to sell a business is a significant decision that requires careful consideration and planning. Factors such as the historic financial performance of the business, current market conditions, personal and professional goals, timing, your age and health … should all be taken into account.

Preparing for a sale, identifying potential buyers, and negotiating the sale process require expertise and the help of professionals such as business brokers, lawyers and accountants. Ultimately, the decision to sell a business is a personal one, but with the right preparation and planning, it can be a positive step towards achieving your personal and professional goals.

What to expect?

When selling your business, you should expect to supply some basic information over the phone to your melbourne business broker or financial advisor. After an inspection of your business and premises and a market appraisal, we would agree on a marketable price. Then, the business broker will compile the business Information Memorandium document to present your business to the public. Lloyds Corporate Business Brokers will determine the most likely source of buyers for your business - from either our own extensive database of buyers, via national or overseas websites, via a direct approach method to specific businesses or industries or via digital marketing.