Article Summary
“When should I sell?” is one of the questions that most pre-occupies business owners who are thinking about an exit. It seems like a tough question. In truth, you can boil it down to one thing: The best time to sell is before your hand is forced. If you wait until fate intervenes, whether in the form of a health scare or a partner who wants to leave or a key customer saying goodbye, you are likely to get a sub-optimal outcome.
The best sales come when three things align: Your own personal readiness, the readiness of your business to be sold, and the readiness of the market to receive it. In practice that means the owner has clear post-sale plans and financial goals; the business shows stable or growing earnings over several years, clean financials, and low owner dependence; and the market offers active buyer demand, favorable multiples, and supportive financing conditions. Buyers pay for future upside they can see, so selling on the upswing, while growth is still visible, typically produces a stronger outcome than waiting until earnings plateau.
Starting the timing conversation 12 to 36 months early is what turns the decision from a reaction into a strategy.
Business Owner Summary
Great exits are all about alignment, not random chance. So what needs to be aligned?
- Your goals, or what you want from the sale and your life.
- Your business fundamentals, or how ready the business is to be sold.
- The market, and how hard or soft it is for businesses of your type.
The key is simple: Never get stuck negotiating from need. If your decision to sell if forced by a partner who wants liquidity or a health scare, buyers will notice, and they will penalize you for it. There is no sympathy or charity at the negotiating table, and your vulnerability is their gain.
Key Takeaway:
Here is the core of what you need to remember: Sell before it becomes a necessity, ensure you are properly aligned, try to sell when your business is on an upcycle, and start preparing as early as 36 months out. This ensures you have leverage. Something else to consider: The weight each factor has can shift with industry or monetary cycles or even your own life situation.
At Sun Acquisitions we have spent decades helping owners apply this framework, ensuring the best possible pricing and positioning across our 500+ successful transactions. It’s not just talk with us, as our record shows. We have a long history of getting deals done at premium valuations.
Business owners are famously non-committal when asked when they plan to sell. That’s because most of them truly haven’t thought deeply about it. And that’s a mistake, because “in a few years” isn’t a plan. It’s simply deferring a decision until fate rears its head and hands you its own deadline.
We’d be lying if we said there is a right time to sell every business. Yet there is right time to sell your business, specifically. The trick is to know what to look for and to use a framework that ensures you see it when it arrives.
In short, three core readiness signals. When they appear, it’s time to start readying the exit.
What Are the Three Readiness Signals?
The first one is the easiest to recognize, because you’re looking at it in the mirror every day. Your personal readiness boils down to things such as hitting a professionally validated retirement number or a desire to move onto life’s next venture. It’s not enough to just grow tired of running your existing business. You need a firm goal and plans on the other side of the sale. Owners who lack these goals often find reasons to stall deals. Maybe they refuse to move from an unrealistic sale price, or they slow play diligence. Buyers have seen it all before and discount for cold feet risk, so knowing your next chapter has real value.
Next, your business needs to be compelling. Multiple years of growing earnings, financials that will withstand a close review, a nicely diversified client base, and minimal “key person risk” to ensure continuity without you. Show these things and you’ve escaped the gauntlet of “most common things buyers will punish.” Businesses with this profile also grant flexibility because its innate desirability allows you to sell it quickly as opposed to enduring a multi-year fix-up period.
Finally, the market should be ready. That can be frustrating since it is out of your control. Yet a savvy seller will keep an ear to the ground (or partner with a savvy advisor) to determine when a selling window is favorable. Strong multiples, ready buyer demand and access to financing all equal good conditions.
Selling on the Upswing vs. Waiting
There is a psychological component to selling, and it can be a trap if you aren’t careful. The ideal moment to sell sometimes feels like a bad moment to sell. If your business is doing well and the pipeline is full…why pull the ripcord? This usually means the owner holds off and keeps enjoying the upcycle, only to finally sell after growth plateaus and their energy has waned. It’s a classic story.
Yet buyers are extremely future-focused. Those good years in the rear window may mean a lot to you, but they don’t mean much at all to your buyers. If you sell during the plateau, you get plateau valuations. Then you become the latest owner who got caught in the “one more good year” trap. You’re often simply borrowing from your future self when you fail to exit at the right time.
This isn’t to say you need to exit too early. Just be honest with yourself about where you are in your ownership cycle. If you think you’re headed for the exit within 3 or 4 years, the upswing is usually your sell window. Few business owners have looked back with regret after selling at or near the top, but many have rued holding on too long and taking less than they could have earned just a year or two earlier.
Economic and Industry Conditions to Watch
There are a few key market signals that bear close watching when thinking about a sale. First, interest rates are key in the lower middle market, as most deals are financed. Buyers can pay more when rates are lower and offers get lower when credit is tighter. No matter how attractive your business is, external forces can impact your outcome.
Buyer demand also waxes and wanes in various industries and across different company sizes. This interest is often cyclical, as private equity firms and strategic acquirers are operating according to their own timelines and logic. Verticals go hot and cold among buyers for many varied reasons. Fortunately, strong data exists from industry periodicals detailing industry multiples and market sentiment. You can also ask an advisor who deals in your specific niche for a personal read on market timing, which is a smart way to gauge what is happening with sales of similar businesses.
Business quality is always paramount, and calling the top is usually a fantasy, so keep a healthy perspective here. When the three signals arrive, your window is open. Just don’t make the (too common) error of assuming a favorable window is going to stay. It’s human nature to treat strong conditions as normal and weak ones as an aberration.
Why Starting Early Beats Reacting
Forced sakes tend to follow the same script, as an owner who felt there were “a few years” left before the inevitable exit suddenly faced something that necessitated a much faster sale. All it takes is a divorce (romantic or business), a diagnosis, or any of a million other developments.
Suddenly your business is on the market “as-is” with every problem unaddressed. The warts are prominent and you are on the back foot explaining why it’s not as bad as it looks. Meanwhile the buyers can sense the urgency and will slow play you while asking for concessions on price and term.
Get ahead of the game and you foreclose that dreadful possibility most of the time. That gives you enough time to maximize value: Clean up the financials, properly structure things for taxes, wait out soft markets and do everything else needed to gain the most important thing of all: The ability to tell a buyer “no.”
How Else to Know If Your Window Is Open
Get some real feedback. Start with a seller assessment. A good advisor can help with this, often with minimal commitment. Then work your way to an honest valuation grounded in real comps and your normalized earnings.
Then apply the framework we just outlined. If your responses to all these issues are favorable, congratulations: Your window may already be open. No matter what the outcome, you’re still ahead of the business owner who never bothered to even research these things.
Final Thoughts
A credible, growing business in a strong market means the owner can negotiate from a position of strength. That’s a moment that often arrives sooner than expected and disappears faster than expected.
There is no cost to preparation, and massive upside. Timing the market may be unrealistic, but being ready when the opportunity arrives is eminently doable. A small investment now can position you ideally for a future exit, and it’s really a shame that some business owners don’t take care of this when they have the chance.
If you’re thinking about your own window, we have free tools to help you along, including our Sun Acquisitions’ Market Value Analysis™. This gives you an informed range and helps identify readiness gaps while also examining the state of demand for your type of business. We’ve already done the legwork, so we invite you to take advantage in one confidential, complimentary conversation.
