When Is the Right Time to Sell a Business?

Owners often come to us asking, “Should I sell my business now, or would I be better off waiting?” Usually, they want to know about the market. Is it a good market right now? Am I likely to get a higher value or a lower value? But the truth is, the market is rarely the real issue.

The Market Is Fine Most of the Time

In the last 20 years, there have been two things that have genuinely affected us in the lower middle market. One was the 2008 to 2010 recession and the second was the run-up on interest rates in 2023. In 2023, it was so much so fast that it sort of shocked the market. Even then, buyers were still active and we sold several businesses. It certainly changed during that period of time, but once things stabilized, so did the M&A market.

And it’s worth knowing that the lower middle market is often different from what you read about in the financial news. When the news says M&A is down, they’re talking about mega deals, public companies, large private companies. The lower middle market just keeps chugging along because businesses are smaller, there are many more buyers, and there’s a lot of money chasing good companies.

What changed in 2023 was the deal terms, but deals were still getting done. Fewer all-cash offers. More seller financing, earnouts, equity. Debt became more expensive and less available, so buyers who depended heavily on it became less competitive. The top valuations didn’t change much but the bottom dropped.

The Question We Actually Ask

By far, the number one question we ask you is are you ready to sell? We’ve had deals where we’ve gone to market, gotten multiple buyers, good offers, great terms, signed with somebody and we’re two weeks from closing and the owner decides they just can’t sell. Clearly, they weren’t mentally ready. That must be number one.

A lot of this is personal. It’s emotional. What are you going to do next if you sell the business and retire? Do you have a plan? Are you financially ready? If someone is 67 or 70, they’re probably ready to retire even if they haven’t figured out every detail. If they’re 45, still love the business, and have no real sense of what comes next, that’s a different situation. We’re much more cautious before taking that owner to market.

The second question we ask is, is your business ready? Most businesses have one or more problems. That doesn’t prevent it from being sold. The question becomes what kind of problem it is? Is it something a buyer might see as an opportunity? Is it something that can be fixed before going to market? Or is it something we can work around by finding the right buyer and being upfront about what’s there? Major things such as a lawsuit, an environmental issue, a hole in the management team, are better fixed first when there’s time to do it.

The market is the third thing to question. Ninety percent of the time, it’s not really the issue so we move on.

When Waiting Made Sense

A few years ago, we were working with an equipment manufacturer. The initial value was around $4 million and our client was fine with that. But when we looked at what was happening in the business, we saw a number of good things coming. They acquired new customers, some of them large, geographic expansion into Europe, and a product with some new technical innovations that made it very desirable. We suggested they wait, they agreed and we took it off the market. Less than a year later, it sold for $11 million.

We’re not shy about telling people they should wait. The thing is, it’s hard to get paid for something that hasn’t happened yet. Buyers may understand the story, but if the results aren’t in the financials, they’re going to discount it. Buyers want to see whether it’s sustainable, not just a one-time event. Sometimes another month, three months, six months, is just enough to prove it out. This can make a real difference in how buyers value your business. Once they can see it, you can get paid for it.

When Waiting Became a Problem

Unfortunately, we know a lot of these stories too.

One of the things we see is people talk about selling and then put it off and then keep putting it off. Then the time they finally make the decision is because something catastrophic has happened. For example, we had one business owner we talked to every year for five years; not because we were reaching out to him, but because he contacted us every year and said he was ready to sell. We’d talk through value and timing, and then he never would pull the trigger. One day, his factory burned down. Then he told us he was really ready to sell. At that point there was nothing to take to market.

There is a more common and quieter version of this and that’s when an owner has a great run, a lot of profitable years, and then gets tired. The business starts to deteriorate and keeps deteriorating. We’ve seen this happen with several businesses and the value just kept going down because the buyers were looking at what was in front of them and not what the business used to be. The owners waited too long.

Business owners will sometimes argue that they’ve been in business for 30 or 40 years and that should count for something. It can, of course, but only if it shows up in the current performance of the business. Buyers care about what the business is doing now and how it’ll likely do after they take over.

Sell when things are going well and going up. A lot of people don’t do that. They don’t want to give up the income they’re making, so they wait until something bad happens. That’s the worst way to do it.

So the best time to sell is when the business is ready and you are ready. Don’t wait for the “perfect” time because it may never happen. Just like with the stock market, hitting the perfect timing is almost impossible.