The Best Time to Sell a Business
Most businesses have a seasonal component where for a period of time monthly revenues exceed the average monthly sales figure for the year. The busy season for roofing companies in the Pacific Northwest is the summer. The busy season for the marine repair industry serving the Alaskan fishing fleet is late winter and early spring as vessels are serviced and prepared to return to sea. Traditionally, the best time to market a business for sale, if the goal is to sell at a premium value, is six to nine months prior to the start of a company’s busy season.
The primary reasons this is true are as follows:
- The best time to buy a business from a cash flow perspective is several months prior to the busy season because financially this creates a scenario where seasonal peaks in revenue occur twice in the first 18 months of ownership frontloading the profit and the ability to build working capital for slower times of the year.
- The best time to buy a business from a transition training perspective is several months prior to the busy season because this creates an environment where the seller will provide transition training prior to and during the busy season, if a reasonable transition training period is incorporated into the transaction to facilitate a smooth transfer of ownership in the “best interest” of the company, buyer, employees, and customers.
- The sale of a privately held company or family business by an experienced, knowledgeable, professional intermediary should be able to be facilitated in three to nine months from first entry of the business on the market. It is in the best interest of the seller, buyer, and the company for a business sale to occur in a timely manner once the decision is made to sell. It is in the best interest of the seller because premium prices are generally achieved in the sale of a business when market conditions are created where public perception is that the acquisition opportunity will not be on the market long. It is in the best interest of the buyer and company for a sale to occur in a timely manner from when the decision is made to sell because capital investment, sales & marketing activity, and strategic planning for the future commonly decline when executive management is focused on a business sale or thinking about retirement. This is reasonable for a short period of time, but can have a detrimental impact on a business if the time period is extended.
IBA, as the oldest business brokerage firm in the Pacific Northwest, administratively recognizes the importance of a timely sale to maximize value for our sell-side clients and smoothly transfer ownership of a business, by having a standard term of 180 days for our representation agreements. It is our belief that the term of a representation agreement speaks volumes about a business broker’s confidence related to successfully completing the project. If we do not complete a sale in six months, we want to be forced to ask our clients for an opportunity to finish the project we started. IBA also conveys our confidence as professional mergers & acquisitions intermediaries in our abilities to achieve our client’s transaction goals, by operating with a 100% performance-based compensation model. Our clients have an expectation that their dedicated IBA professional with relevant industry experience will sell their business for a premium value in a timely manner and not be compensated until they receive the proceeds from the sale. Few business brokerage firms set those type of expectations for their clients. Fewer still can convey that they have successfully facilitated over 4000 transactions since 1975 like IBA.
If you are interested in selling a business in the Pacific Northwest in a “win-win” transaction for a premium value facilitated in an environment of confidentiality employing “best practices”, we would welcome the opportunity to provide an overview of the services we offer our clients.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.