Guide to selling a business part 1: Why are you selling up?

In the first of a three-part series in association with BusinessesForSale.com, we explore the reasons people sell their company and when it is right to let go.

You may put your business for sale for a wide range of reasons, and sometimes several motivations converge.

Those reasons can fall into one of two camps: an entrepreneur’s personal circumstances or the business’s health in the wider economy.

These can include personal reasons, some that you could have accounted for and others that were more of a surprise. For example, retirement, relocation, illness or you are simply looking for a new challenge.

As for commercial reasons, a business owner may have always planned to sell once the business had reached this stage of development. On the other hand, they may be looking to sell because the market conditions are becoming increasingly challenging.

Business owners, however, are far more likely to sell for personal reasons. It’s only natural that people want to sell when it suits them.

Growth phase

In an ideal world, an entrepreneur’s desire to move on will emerge when the business is climbing a growth curve. More specifically, Rob Goddard, CEO of Reading-based business transfer agents, Evolution CBS, thinks that it’s better to time a sale so that the business is in a growth phase, but not at its peak.

“A typical business growth curve is a repeat of growth-plateau-investment-growth. Businesses grow in the early stages, then plateau and need investment to get to the next level.

“So, if you look at this scenario from an acquirer’s perspective, the business is unlikely to warrant a premium price. Equally, if the business is at the top of the growth curve, an acquirer is also unlikely to pay a premium price because investment for growth will be required immediately. In many ways this should be the starting point for the timing decision.”

Putting a plan in place

The moment you think you may want to sell in six, 12 or even 18 months’ time, it’s worth putting a plan in place for how you should prepare your business over that time period.

Start with your personal objectives – for example, ‘I want to retire by the age of 60’ or ‘I need a sale price of £150,000 to afford that house in the Cotswolds’ – and then work backwards.

So, find out how much your business is worth now. With this information you can put longer-term plans in place to reach the price you want.

Remember to take into account the fluctuating market in your sector but increasing your business’s value can include: cosmetic improvements with renovations, upgrading your systems or fixtures and fittings or business expansion.

Create a plan with milestones and steps you must take to hit them – but keep them realistic. And don’t panic if your timetable slips. Periodically review and amend your plan in light of any turn of events.

The ideal time

Setting objectives helps focus the direction of your business

The ideal time to sell a business is usually when you will be able to get the most money for it. If you have had a consistent history of growth and a recent growth trend in the last year, your business will have more value to potential buyers.

Sometimes, however, you might need to exit your business without much time for preparation, such as ill health.

In this instance, you may need to settle for a slightly lower figure in exchange for the lack of preparation, but ensure you take a look at the vital aspects of your business primarily, such as things being able to run smoothly without you at the helm.

Finally, and though this is rare, you may get an unsolicited offer that is too good to turn down. So however much you enjoy running your business, everything has its price, and you may end up selling up several years earlier than you expected.

Whatever your situation, the reason behind your business sale will create a ripple effect on your exit strategy and the overall outcome of the sale, so ensure that you are prepared for all foreseen, or unforeseen, circumstances for a smooth and profitably exit.

Jo Thornley is head of brand and partnerships at Dynamis.

Further reading on selling a business

Related Topics

Selling a business

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