2021 was a record-setting year globally for Mergers & Acquisitions (M&A). With that kind of momentum to carry into 2022, this year is shaping up to be no different. But just because the market is hot, does that mean selling your business is the right move for you now?
When should you sell your business?
In a previous article, we spent some time talking about the right time to sell your business. We discussed six factors to help you prepare for that time, from getting into a positive mindset and considering your “why” factor, to seeking input from those important people around you and making sure your due diligence is in order.
But maybe the idea of selling your business is just now hitting your radar, and all of that information we just shared above is feeling overwhelming.
Perhaps burnout has suddenly hit, or you’re getting restless, or maybe you are just looking for a way to make a major pivot post-pandemic. You heard it’s a strong M&A market out there and want to know if selling might actually be an option on the table for you right now. Consider the list below to be a gut-check on whether you should strike while the proverbial market iron is hot.
5 Indicators You Should Be Selling Your Business Now
1. You understand market data, trends, and your value
Market data, trends, and your business’s unique value are all distinctly different things that have something critical in common—numbers. The problem is much of this information is difficult to find because middle-market M&As for private businesses happen “off-market,” meaning you don’t have access to public numbers to help inform the valuation of your company.
Comparable transaction numbers are vital to pricing your business, and you have to understand these numbers and what they mean in order to be equipped to put your business up for sale right now. The good news is, a partner like Align has access to this information and can help you make sure you’re adding the right price tag at the right time.
2. You’ve got more than one buyer at the table
You’ve seen what’s been happening with inflation over the last year. Supply issues drive prices up for commodities like cars or gallons of milk because when there are more buyers demanding something, it suddenly becomes more valuable.
If you are wondering if you should sell your business right now because one interested buyer has cold-called you and expressed interest, that doesn’t mean right now is the best time to sell. You’ve got to have the advantage when it comes to supply and demand. When you have more than one buyer at the table, you have more leverage. You also control the timeline, because you’re in the driver’s seat when you have options.
3. You know what you want and where it will go
We all get excited when we see potential dollar signs flashing in front of us, but do you know exactly how many of those dollars you want? Do you know what you need in order to maintain the quality of life you have now? Do you know what kind of life you want to have in the near future and what you need to build that life?
You will know it might be time to sell your business now if you have the answers to those questions and can be proactive about the money rather than reactive.
4. You’re emotionally ready
The three indicators we have discussed so far are primarily logic and fact-driven. They require mental toughness and information assurance. This one asks for emotional readiness. Moving on and selling what you have spent years (perhaps your whole life) building is a monumental life change. It’s a pivotal milestone, both professionally and personally. Are you ready to be objective in your decision-making process? Can you detach enough to negotiate for yourself? The heat of the moment can get to anyone, especially when it comes to your life’s work.
5. You have the bandwidth
The M&A process, when done right, takes months of data gathering, due diligence, interviews, meetings, and more. At the beginning, the process feels new and exciting—like a sprint. But it can quickly become overwhelming and take over important daily operating activities as you learn it’s more of a triathlon than a 100 meter dash. If you aren’t careful, the burden of selling combined with the everyday motions you must go through to maintain that valuation you worked so hard for can get the best of you. If you have the bandwidth or have a partner who can help share that burden with you, then you might be ready.
What you should know before selling your business
Aside from your core “why,” whether it’s retirement, burnout, stagnation, or any other multitude of reasons, there’s one more component you should have a handle on once you feel confident the time is right for selling your business.
You need to have a handle on your business finances.
It’s imperative to have a firm understanding and support for your revenue and profits. Valuation is calculated as a multiple of profitability, so if your bookkeeping is sloppy or you aren’t recording things property, it will affect your valuation. This is often discovered in due diligence, and the buyers ask to reduce the price when these things are found. At this point emotions are already running at an all-time high, and hearing the news that the price is being reduced is crushing. Once you have a full grasp of your EBITDA (“Earnings Before Interest Taxes Depreciation and Amortization”), you will be fully prepared to hit the negotiating table with confidence.
It can be difficult to cut through the noise and decide whether or not now really is the right time to be selling your business. If you need a partner to help you bring more buyers to the table, support your emotional readiness, share the burden of the M&A process, or just to help you decide if you’re ready—the experienced team at Align is here for you.
Your life’s work is important to us. Through our strategic service approach, we can help ensure your organization generates significant enterprise value.