Are you interested in selling your business but aren’t sure where to start? Selling a business can be a time-consuming process that involves adequate time and effort. For example, if there are multiple owners, they may have different goals they are looking to achieve through the transaction. This can depend on the state of the business and how involved each owner is. A potentially successful transaction should be grounded in a policy that properly identifies and discusses the team goals, as well as personal goals the owners hope to carry out.
In this blog, we are going to deep-dive into when it’s the right time to sell your business, what to look for in potential buyers, and how to keep up with market conditions.
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Knowing When to Sell Your Business
As a business owner, it is extremely important to sell your business at the appropriate time, which can be three to five years prior to making an exit. In most cases, an agency will require an earn-out, with the buyer, expecting the seller to transition the business over several years. As the seller, you also want to keep in mind that the right time to sell is when your business is doing well, demand is high, and revenue is growing. If you are trying to maximize value, it is also best to sell when your agency has the most momentum going into the earnout period.
Another key thing to consider is current market conditions, which can potentially conflict with personal and business objectives. Business owners often want to sell their business and retire or start a new venture, but economic conditions and the market condition may not be suitable.
It is beneficial for business owners to understand purchase price since this is often the most negotiated point they come across. Based on each seller’s individual needs and goals, sellers may be looking for different transaction structures and processes. One seller may be looking to cash out and get the highest purchase price possible for an agency, regardless of who the buyer is and what will happen to the business after the transaction.
In a different scenario, the other seller may be looking to find “a home” for the team and culture that they have built. If a seller’s agency has a strong culture and the seller wants to keep it, then some buyers may be better suited than others depending on their own culture and values.
M&A transactions are an extensive process that can take anywhere from six to twelve months to complete. Timing depends on many factors, including market conditions, buyer sentiment, and owner objectives.
What about the buyer? If it is the right time to sell your business, it might also be the right time for the buyer. However, it ultimately comes down to whether or not the buyer is interested in an acquisition , what they are willing to pay, and what financing they have available. Easy access to capital and low interest rates provide a favorable environment for acquisitions.
Why Are Market Conditions Important to Keep in Mind?
As both a business owner and potential buyer, you want to make sure you are staying up to date with M&A trends in the market. That means understanding and analyzing when market conditions are optimal for buying or selling. Potential buyers might be more hesitant to acquire during difficult economic times because it can be more challenging to secure the proper funds and there is a greater risk in doing a transaction. Here are some things to watch and analyze in the market:
Trends in the Industry – It is important that you research your industry and keep up to date on current trends. This will help you determine whether brands and companies will be spending more on advertising, marketing, and media. In an industry that is on track for success, the potential buyer will be interested and attracted to investing in your agency or business.
A merger and acquisition advisor can provide you with guidance on how to sell your business and walk you through the transaction process when your business is growing at a steady pace and the market is favorable.
Seller’s Market – Being in a seller’s market means that there are more potential buyers looking to buy an agency than there are actual agencies for sale. If there is a significant number of potential buyers searching in your industry, you as the business owner have a better chance at getting more favorable terms than if it was a buyer’s market.
Be sure you understand each potential buyers’ goals and how they plan to continue growing your business once you decide to sell your agency to them and head into your earnout.
Tax Policy – At a high level, if there are significant changes in tax rates on the horizon, those changes may make the market more opportune to sellers and buyers. For example, if the capital gains tax increases, then it may be ideal for business owners to sell in the next few years. A potential ordinary income tax rate increase could also persuade sellers and buyers both to consider selling and buying sooner rather than later down the line.
Need an M&A advisor to guide you? Give us a call!
How an M&A Advisor Can Help
If you’re still not sure when to sell your business or need a little more insight on the topic, an M&A advisor can help. M&A advisors are there to give your advice and guidance through all your decision-making processes. Whether that means you are looking to sell your business or to potentially buy into another business, M&A advisors will be able to walk you through the process.
Your M&A advisor is there to help you navigate all transactions and processes in the best way possible. Their goal is to make sure that you will succeed no matter what the obstacles are and help you overcome them.
You may want to ask yourself some of these questions if you are hesitant on knowing which M&A advisor to choose:
- Do you trust this advisor to help sell your business the right way?
- Do they understand your goals, needs, and industry ?
- Does your advisor really want what’s best for you?
- Do they provide you with tools to keep your business on track?
Once you have answered these questions, you are ready to start.
Partner with Clare Advisors
Whether you have questions about mergers and acquisitions or need an M&A advisor, Clare Advisors will be able to assist. We specialize in providing mergers and acquisitions (M&A) and financial advisory services to privately held companies in industries such as:
- Digital advertising
John C. Burns III, the managing partner of Clare Advisors, has successfully completed over 30 buy-side and sell-side M&A transactions. John and his team of professionals will work hand in hand with you through every stage of the research, decision-making, and negotiation processes, ensuring you are confident in the decisions you make.
Do you have any questions? Let us know!