You probably think the answer to the question ‘when is a good time to sell your business’ differs for all business owners. And you would be right. There are, however, two clear times for all businesses. Firstly, a purely business-focused decision and secondly, a decision influenced by personal circumstances.

In reality, the absolute best time to sell your business will be when things are going well. Owners selling at other times may find the result to be sub-optimal. This happens because they are doing a deal when one of the following elements is not balanced.

Four indicators it is a good time to sell your business

1. Upwards financial trajectory

Your finances should be on the up and show a strong history of the same. While there may be a temptation to continue in your growing business, there will be a larger pool of investors to choose from. This is especially true if you can demonstrate strong financials and optimistic future trading.

2. A solid and loyal customer base

If you run a service-based business, you will be assessed on the strength of your current contracts. Customer loyalty alongside the opportunity to retain these customers is also important. If you have a product to sell and a strong supply chain, a diversified customer base will serve you well. Investors need confidence that you are not reliant on a small group of customers for a large proportion of your sales.

3. A strong team

Whilst you are looking to sell your business, investors will be keen to see a strong loyal team in place. They can rely on them during any transition periods and future trading. Remember, it is also a positive reflection on your leadership if your team is supportive and loyal.

4. Up to date infrastructure

If your business is machine or technology-heavy, our advice is to make sure it is up to date. Where possible, ensure the capital investment is paid off. An investor will not look favourably at an opportunity requiring immediate capital investment. They would prefer not to take on the debt of historic expenditure.

Four personal reasons for a business sale:

Ideally, you need to remove any personal feelings or lenses through which you may be viewing the future. However, it could be that your circumstances are such that you will favor a sale despite the business not being in optimum shape to attract the very best investment. The following situations could be deemed as ‘good times to sell your business’. Often, you will find it is in the best interest of the company. Staying at the helm could become damaging to its future. For instance:

1. You have lost interest

If you find yourself distracted by new projects and find it difficult to get excited by the company’s future, it is time to move on. Allow others to build on your success while you capitalize on your hard work.

2. Your business is too much for you

Congratulations – you have built a brilliant business. However, to keep it growing is beyond your expectations or expertise. Perhaps you don’t have the appetite to be heading up a larger-sized business. 

3. Your life has changed

There are many examples of lifestyle changes which drive business owners to sell. Age, health and relationships are three common ones.

4. Changes in the market

The once buoyant market you entered is now saturated or shrinking. You have considered how to diversify and have either hit a brick wall or do not have the energy or cash available to pivot. Whilst investors will be most hungry for businesses in an upward market, a successful business with a strong customer base may still be attractive.

Whatever your circumstances, to get the best possible return on your hard work, it is incredibly important not only to recognize the right time to sell but also to be as sale-ready as possible. This enables you to react opportunistically. 

Getting your business sale-ready

Purchasers will need to ‘kick the tyres’ to enable them to understand your business. This helps ensure it is a good investment as well as establishing value. This will involve not only speaking to you and the senior leadership team to understand the market in which your business operates, its strengths/weaknesses, and operational matters. It will also involve financial and tax due diligence to understand the financial and tax risks they as the new owner will inherit. Another key area is the legal due diligence which focuses on the structure of the business and its material legal agreements. They will also consider legal risks (such as product liability, data protection, money laundering, anti-bribery, environmental, litigation), title to assets (including real property and intangible property such as intellectual property rights). They will look into employee matters (including pensions). 

Selling a business, especially if speed is of the essence, will be easier if the business already has the right legal arrangements and policies in place. As a business owner, key questions to ask yourself are:

  • Do I have in place comprehensive and legally sound signed legal agreements (such as supplier contracts, customer contracts, service agreements, SaaS agreements, intellectual property licences, employment/consultancy contracts)?
  • Do I have evidence that the business owns its assets (for example, plant/machinery, stock, intellectual property, real estate)?
  • Can I demonstrate that my business has sound business practices to reduce legal risk (such as employee handbooks, data protection policies, anti-bribery policies)?
  • Are the company registers and books up to date, including filings at Companies House, register of members, register of directors, register of persons with significant control?

If you are not sure of your readiness, you can seek advice from corporate financing companies and accountants (with regard to financial and tax advice) or legal firms such as Farringford Legal. Our team of experts can assess your business including how sale-ready it is. They can advise your best next steps. This could involve securing a valuation or opening up dialogue with one of our investor partners.