The right time to sell your "company"
Why the right time is so important when selling your company
Are you considering selling your company? Also think about the right time. Timing is crucial when it comes to getting the best price and finding the best buyer.
For the best time to sell your company, the following three factors are crucial:
- the motivation of the entrepreneur
- the development of the company
- external factors such as market and regulatory developments.
Bringing the divestment process into line with these aspects can contribute significantly to a smooth process, a higher probability of sale and better conditions. This requires thorough and professional preparation.
Your motivations for selling your company
The most common reason for selling your company is reaching retirement age. Increasingly, however, we also see entrepreneurs who decide to sell earlier than the usual retirement age because they want to have more time for family and hobbies after years of hard work.
Unfortunately, there are always situations in which personal circumstances such as illness force the entrepreneur to sell.
Also, the need to minimize your risk and secure your retirement is sometimes a trigger for a sale.
Not infrequently, an entrepreneur also acts opportunistically and sells because he has just received an attractive offer for his company.
Factors from the company’s point of view
The economic development of a company can be a significant driver for the right time to sell. In both directions.
If the company gets into trouble because, for example, customer orders are cancelled, there are difficulties with corporate financing, a competitor threatens the business or an industry changes massively, one may opt to re-organize or it may be advisable to sell the company.
Even if the company is very successful, it may make sense to look for a new owner. For example, if a buyer has greater resources and know-how to handle the next stage of growth or simply because you want to take advantage of the moment. As a rule, you will be able to achieve a better price when in a successful phase than with stagnating results.
A medium-sized entrepreneur cannot fully determine the general market environment. However, it can be of great importance for the timing of a company sale. In a positive market environment and under favorable regulatory conditions, investment decisions are made faster and easier.
The current low interest rate environment favors acquisitions because strategic buyers and financial investors are looking for takeover opportunities. Your advantage may be that you can choose the most suitable one for you from several offers in a structured sales process.
What else is worth thinking about?
Not only the timing is relevant and/or decisive – also the motivation of potential buyers. Think about when they think it’s a good time to acquire. Think from the buyer’s perspective and think about their motivation, company development and external factors from their point of view. This is a good time for you to start the sales process.
The right preparation
Once the decision to sell has been made, one is usually eager to sell as quickly as possible. But often after the sale, one finds out that the company is suddenly valued higher than at the time of the sale. With good preparation, you can make sure to get what you deserve. In our experience, the following four steps are part of adequate preparation:
- The view of the company from the buyer’s point of view: How attractive is your company from the buyer’s point of view? What synergies, technologies, geographies, culture can be unlocked and what risks could be avoided to the buyer’s advantage? Once identified, they can be addressed in advance.
- Create a transparent financial model that shows how your business makes money. This serves the buyer as a basis for decision-making. He can then make a better offer from his point of view, because he knows whether and if so, what risks he has to price in.
- Exploit growth potential. Don’t leave that to the buyer but do it yourself. You will then benefit from a better and fair price for your company.
- Operational improvement measures. This is usually short and painless and has a positive effect on the sales price.
A key success factor for a successful company succession is the right timing.
In practice, the timing of a sale is often determined exclusively by the personal motivation of the entrepreneur: “I want to sell now”. In doing so, he overlooks the fact that corporate, market and regulatory developments play a potentially important role.
It is important to reconcile the sales process with all three factors as part of a thorough preparation. The best way to do this is to deal with a possible sale at an early stage, so that the entrepreneur and the company can prepare themselves in the best possible way for an upcoming transaction. This allows you to react when certain factors change and maintain control over the optimal timing of a sale.