The best time to sell is before you want to

Most owners decide to sell when they’ve had enough. It’s a perfectly reasonable way to arrive at the decision as well. You’ve had the business from when it was small, built it up through the hard times and the golden years, and now it’s time to settle down with family or explore exotic destinations – ie retire. But it’s also one of the worst available timing to do so. 

The moment you want out of the business tends to be the moment your company is least able to command a price, for reasons that have very little to do with the market and a great deal to do with you.

Two lines heading in opposite directions

Picture two things moving across the last decade of your ownership.

The first is how much you want to sell. It rises slowly and then sharply. A health scare, a difficult year, a customer who finally becomes more trouble than they’re worth, a birthday with another nought on the end.

The second is what the business is worth to somebody else. That tends to peak earlier, while you’re still building, still chasing things, still taking the calls you don’t strictly need to take.

The space between those two lines is where most value disappears. By the time wanting to sell has caught up with being able to sell well, the other line has been falling for some time.

Your energy shows up in the numbers before it shows up in you

New business development is one of the most discretionary thing you do for the best sell price of your business.

Nobody notices immediately when you stop chasing the marginal opportunity. You decline the speculative meeting because the drive is two hours each way. You let a tender go because the margin was thin and the effort wasn’t. The existing contracts keep running, the renewals come through and revenue holds up perfectly well.

What happens is the pipeline thins first, and it probably started thinning long before an owner admits to themselves that they’ve begun winding down growth.

A buyer doesn’t need to meet you to see this. They look at new customer wins by year, average contract value over time, the balance of renewals against genuinely new business, how long it’s been since a significant name was added. The shape comes through clearly in the data and it gets read as a “business losing momentum” rather than an owner losing appetite.

Which is an expensive misreading for you and almost impossible to argue with once the numbers are on the table.

What a buyer is actually paying for

Nobody buys your last three years. They’ve already happened and the money from them is yours.

What a buyer prices is the next three years, and the only evidence available is what the last three imply about them. But growth does that work for you. Flat performance becomes a question you’ll spend the entire process answering, and answering is expensive. Every explanation invites a follow-up, every follow-up takes weeks and weeks are where a price gets reopened.

There’s a second effect that catches tired owners particularly hard. Buyers of owner-managed businesses rarely pay everything on the day. There will be deferred consideration, an earn-out, a handover period, probably a lock-in of some length.

If you still want to be there, that structure costs you very little. You’d have stayed anyway. If you’re finished, your advisor is negotiating hardest against precisely the thing you most want to avoid, from the weakest position you’ll ever occupy. The owner who wants out fastest is the one who could get the least for their business.

Work backwards, and it starts earlier than you’d think

Six to eighteen months for the process itself. Then a handover, commonly one to three years depending on how the deal is structured.

So an owner who’d like to be genuinely finished at 65 is having the first conversation somewhere around 61. Not the decision to sell, though. It’s the conversation about whether, and when, and what would need to be true first.

Put the other way round, the point at which you ought to be thinking seriously about this is while you’re still enjoying it. Which is an awkward thing to be told, because nothing in your current experience is prompting the thought, and the people who usually prompt it are the ones with something to sell you.

What this means in practice

None of this is an argument for selling before you’re ready. It’s an argument for separating two decisions that owners tend to collapse into one. 

Deciding to prepare is a long way from deciding to sell, and preparation is the thing that gives you a choice later rather than a situation to accept.

Preparation is also dull, and it draws on energy you’ll have slightly less of every year. Monthly management accounts that reconcile to the accounting system. Revenue recognition you can defend to somebody else’s accountant. A second name your customers know as well as yours. Ownership tidied, clearances mapped against the business rather than individuals, contract renewals pulled forward instead of left to run close.

Do that at 58 and you can sell at 60, 63, or not at all. Leave it until you want out and you’ll be doing it in the worst year to be doing anything difficult, with a buyer watching you do it.

The owners who come out of this well are the ones who were ready before they needed to be, and could move when it suited them rather than when it suited somebody else.

If you’re nowhere near this decision and would simply like to understand what being ready involves, that’s a conversation we’re happy to have with nothing attached to it.