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Determining the Right Time to Sell a Business

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When your business-owner clients begin thinking about selling their businesses, they may probe you as you discuss a possible sale for how to determine what is the “right” time.

Ideally, sellers would time their move when the buying market is strong. They do tend to have some sense of that. They hear news of other sellers, and they may notice an uptick in those constant unsolicited calls to inquire about possible interest in sale.

Financial advisors also often have a fairly strong sense of the market, too, both from learning details of other transactions that have occurred and from reading about recent activity on a broader base. Timing to enjoy a competitive market can make a company worth between 25% and 50% more than it might have been otherwise.

Owners naturally need to consider a myriad of personal circumstances to decide if such consideration is worthwhile. Often advisors assume that the time to consider a sale is probably not until the owner reaches an age of likely retirement, maybe 60 or 65. Not so! Our firm sells middle-market companies 365 days a year, and more than 75% of our sellers are in their 40s. Owners north of 60 often become very fearful and tense about the possibility of sale. Much of this relates to uncertainty about what they will do daily without a company to run. They are afraid of such change. As a result, they often wait too long and sell for less.

Do a favor to your business, and to your clients, by watching for potential sell-side opportunities as business markets evolve. And don’t think only of your older clients. The young guys, often with fairly modest investment accounts but growing and thriving businesses, may have the greatest potential for a huge home-run transaction.

For older clients who are approaching retirement, encourage their consideration of sale before health wanes or before business declines. Often older owners have a natural reluctance to slow capital infusion as they near retirement. Businesses that aren’t growing almost inevitably begin to slide all too quickly in the opposite direction. For maximum value, owners do well by not waiting until the last minute.

As a financial advisor, you can do great good, for both your client and yourself, by keeping your eyes and ears open for a blossoming company that may win your client a lifetime of financial freedom. If you have a client with strong seller potential, help him find high-quality professional assistance. Listen to information about great seller reps. When you hear of one you like, check his or her track records and references. Look for sales fee incentive designs likely to ensure many hundreds of hours working to maximize results. Check legal histories to make sure their seller clients keep their proceeds without lawsuits or hassle.

Talk about business value. Learn about market opportunities for your young, highly entrepreneurial client president. Educate your older business-owner client to get ahead of potential value problems. Helping owners see the right time for opportunity will make you a life-long friend and hero to your clients.