When is the worst time to sell a business? The simple answer: when you have to.
The best time to sell, of course, is when you don’t have to—when the business is on an upward trajectory, and you have the flexibility to walk away. One of the most powerful negotiation tools in any transaction is the ability to say “no.”
You’ve likely heard the advice that you should always run your business as if it were for sale. That’s sound guidance. It’s also a certainty that every business will eventually experience a succession event. If your plan is to sell to an unrelated third party, controlling the timing of that event is critical.
Consider two businesses with identical balance sheets and income statements. The first is owned by someone mid-career, with a strong next generation of leadership in place. The second is owned by individuals nearing retirement, with little or no leadership succession plan. Despite identical financials, the first business is clearly more valuable.
Why? Because the first owner has options. They can take the time to find the right buyer, command higher multiples, and—when negotiations become difficult—say “no” and walk away. Buyers, especially those with experienced advisors, are sophisticated. If they sense that a seller must complete a transaction, negotiating leverage shifts quickly and pricing often declines.
It is common during the due diligence phase—even after a letter of intent has been signed—for buyers to seek price reductions based on findings. When negotiations become challenging, the ability to confidently walk away is invaluable. Selling a business is a strategic process, and controlling the timing is one of the most important factors in maximizing value.
Final Thought
As discussed, a succession event is guaranteed. It is far better to have it well planned and on your terms than to be forced into a transaction without preparation or flexibility.
Ready to begin planning for the future of your business? Contact the DMJPS team to discuss your succession and exit planning goals.
Download our Planning for a Third-Party Sale Checklist to start building a stronger exit strategy today.
Michael Gillis, CPA, PFS, CGMA
Mike Gillis, CPA, PFS, CGMA is a Partner at DMJPS CPAs + Advisors. Mike has more than 30 years of experience in public accounting. He is a frequent presenter on tax matters, advises privately-held businesses and their owners, and works extensively in the area of succession and exit planning strategies for businesses.
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