September 16, 2011
Selling your business is always stressful but trying to determine when you should sell your business may be the most
difficult decision to make. Being able to predict the value of your business is challenging considering today’s
economic environment. When contemplating selling, timing is everything, as selling too soon or waiting too long could
mean the market value of your business could be dramatically affected. Regardless of when you plan to sell you should
be prepared to act immediately if the right opportunity presents itself. Being prepared to sell requires one to first
be emotionally ready, and then insure you are growing your business financially, and finally understand the tax consequences
by selling now or waiting.
In previous monthly blogs I have addressed the emotional aspects of selling
when there is family involved as well as the misconception of what keeping the status quo means. While the decision
to sell is always emotional, it is much easier to manage if you determine when to sell versus selling when you do not have
a choice. Regardless of the reason you might sell your business you need to have a plan that is not emotionally driven but
built on sound business reasoning. Having a distributorship that lacks scale, is not preferred by your primary supplier,
and is not able to grow through new brand or territory acquisitions are significant issues that cannot be ignored. If
you are faced with any or all of these issues the best time for you to begin the planning process may be now. It is
a well-known fact the major suppliers would like to see consolidation take place. This supplier pressure along with
eroding margins because of rising costs and the inability to grow your territory and/or portfolio should mean one needs to
have a well thought out exit plan.
In order to maximize your value you need to make sure that your
business performance is at its peak. Once the financial performance of your distributorship stagnates or declines you
lose your leverage to negotiate a higher value. Instead of staying in business because of record breaking profitability,
you may want to consider selling your business to take advantage of this financial performance. This strategy will allow
you to point to the growing profitability of your business and will no doubt enhance the value. Waiting until the economy
is stronger, may take longer than you would like. According to Dr. Bernard Weinstein, PH.D., an economist and professor
from SMU, sees years of economic stagnation ahead of us. The combination of our deepest recession in 30 years, 9% unemployment
and 17% of America’s homeowners owing more on their mortgage than it is worth, an economic recovery seems to be a daunting
challenge into the future.
When is the best time of year to sell? Since the summer is the
most profitable time of the year, you may look at the fall as a prime time to put your business on the market as one can take
advantage of these highly profitable months and leverage your profitability to enhance the value. Since one will want
any potential buyer to see success in both sales and profits, beginning negotiations in the summer is ideal. Since negotiations
typically take months to finalize you should also plan your timeline on when you may want to close into your strategy.
There also should be consideration given to the buyer and their willingness to close around any major holiday or peak selling
season. Trying to close any deal around a major holiday only complicates the transaction and could end up delaying
the closing past your deadline.
Once you have made the decision to sell and have established your expected
selling price be sure you understand the tax consequences of your actions. Based on the structure of your business,
you may look at selling the entire corporation through a stock sell or the sale of assets only. Capital gains tax rates
should also be considered in determining your selling timetable. While the federal government has delayed any increases
in capital gains taxes, one should anticipate that this rate will eventually increase. Once this rate is increased it
will have significant impact on the proceeds from any transaction. The time to avoid this punitive increase will not
be when the changes in tax rates are announced as they may be retroactive as done during the Clinton administration.
Once you have made the decision, it is impractical to know if you made the correct choice to sell or not, time will be determining
factor to judge your success.
“Remember, you only have to succeed the last time”