Selling Your Business in Palm Beach? Timing Helps!

There’s an old adage in both real estate and the stock exchanges that you “can’t time the market”. It’s true – buying at an all-time low and then selling at an all-time high takes more luck than skill, especially with a small business.

That does not mean timing doesn’t matter. Timing is one of several factors that influence the final sale price. At a high level, timing of the sale can be critical.  Let’s examine why this factor is so important:

Is the business cycle in expansion mode?

This doesn’t have anything to do with your company. It’s more about the stage at which the overall economy is passing through.
When employment is high, incomes are rising, the country’s GDP is growing strongly, borrowing costs are low, and the TV news is good, you can expect the value of your business to increase too. At this time, stock market valuations will be at a peak, and merger and acquisition activity will be growing rapidly.

However, when the business cycle turns, and there is a hint a slowdown, you can expect valuations to fall across the board because the risk to the buyer has increased. You don’t want to be in a position where you have to sell your business when the country is talking about a pull-back or a recession.

A growing company will attract a higher valuation

Most companies go through several distinct phases. Rapid growth in sales volumes usually marks the initial period. This could be followed by a spell when the increase in revenues tapers off while profits increase.

Subsequently, sales may flatten out, and profitability may reach a plateau. Declining business volumes and falling profits could mark the final phase.

It’s quite obvious that your company will command the highest value when it is growing, and its prospects are good. Although buyers price businesses based on their recent performance, they decide to buy based on the growth potential. They will look for a company that has the potential to provide a growing return on their investment.

It can be hard to get yourself to sell your business when it is doing well. In fact, that could be the time when its sale is furthest from your mind. However, you must remember that a profitable business that is growing will command a higher price.

Better books and records translates to a better valuation

Many entrepreneurs devote all their time and energy to running their companies. Any excess cash that it generates is plowed back into the business and is typically put towards investments to help grow the business.

However, it’s important to build a foundation of quality record keeping, and then to stay on task by investing in a bookkeeper and an experienced tax accountant.  If the business is booming but you do not have quality recordkeeping that documents your success, you’re leaving a lot of money on the table when it comes time to sell.

Again, timing matters. You do not want to go to market at a time when your books and records are dated, especially if your business is growing.

Timing holds the key

Remember that getting the maximum possible value for your business can be a complicated task.  The skills and expertise that you need to sell your business may not be the same as those that helped you to make it a success in the first place.

How much experience do you have in selling a company? It’s likely that your competence lies in other areas. Entrepreneurs who realize this have a much greater chance of getting the maximum possible sale value.

If you have decided to sell, focus on how you can ensure that you exit during an upswing in the economic cycle. Additionally, your sale should take place at a point in time when your business is growing – and with professional financial books and records in place.
I’m sure that sellers who were ready to sell in 2006 but held on too long, only to see the market collapse and valuations take a nose-dive, agree that you can’t time the market.

Sunbelt Business Brokers of West Palm Beach can help you prepare to sell your business in South Florida, guiding you from listing to closing.  If you’re considering selling your business, get in touch with us today for a confidential, no obligation conversation.

Ryan Cave is President of Sunbelt Business Brokers of South Florida, a business brokerage firm specializing in the purchase and sale of small to midsize businesses. Sunbelt Business Brokers of South Florida has been involved in the valuation and sale of hundreds of privately held businesses for nearly 20 years.

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