Selling Your Business FAQ

The right time to sell is typically when:

• Your business is performing well with strong financials and growth trajectory
• Market conditions favor sellers in your industry
• You've reached peak valuation based on recent performance
• The business can operate independently of you
• You've achieved your personal and financial goals
• You have 1-3 years of preparation completed

Selling during peak performance typically yields 30-50% higher valuations than selling during downturns or transitional periods.

Generally, no. Selling during a downturn typically results in 30-50% lower valuations and fewer qualified buyers. However, exceptions exist:

1. If personal circumstances require immediate sale (health, retirement timing)
2. If industry trends suggest permanent decline rather than cyclical downturn
3. If the downturn is personal to your business and fixable by a new owner
4. If waiting means missing a strategic buyer opportunity

The key is understanding whether the downturn is temporary (wait it out) or structural (sell sooner). In temporary downturns, improving performance for 12-18 months before selling can recover significant value.

Properly preparing a business for sale typically takes 1-3 years:

• Year 1: Clean up financial records, document processes, address legal issues
• Year 2: Implement improvements, reduce owner dependency, strengthen management team
• Year 3: Demonstrate consistent performance, finalize documentation, engage advisors

Rushed sales often result in 20-40% lower valuations. The preparation period is an investment that significantly increases sale price and deal success rates.

Key factors that increase valuation:

1. Consistent revenue growth (20%+ annual growth commands premium multiples)
2. Strong profit margins (above industry average)
3. Diversified customer base (no single customer >15% of revenue)
4. Documented, transferable processes
5. Capable management team that can operate without owner
6. Clean, audited financial records
7. Protected intellectual property
8. Recurring revenue streams
9. Growth potential and market position
10. Proprietary systems or competitive advantages

Businesses with these factors can command 2-3x higher multiples than similar businesses without them.

Common valuation methods include:

• Multiple of EBITDA - Typically 3-7x for small businesses
• Multiple of SDE (Seller's Discretionary Earnings) - Common for owner-operated businesses
• Revenue multiple - Used for high-growth or unprofitable companies
• Asset-based valuation - For asset-heavy businesses
• Discounted cash flow (DCF) - For businesses with predictable cash flows

The method used depends on industry, size, and business characteristics. Professional valuations consider multiple methods and market comparables.

Common costly mistakes:

1. Not preparing in advance (reduces value by 20-40%)
2. Mixing personal and business expenses (hurts credibility)
3. Poor financial record-keeping (delays deals, reduces price)
4. Being the business (buyers discount if you're irreplaceable)
5. Letting performance slip during sale process
6. Not having documentation (processes, customer contracts, IP)
7. Choosing wrong advisors or going without representation
8. Emotional pricing vs. market-based pricing
9. Not understanding tax implications
10. Disclosing sale to employees/customers too early

Each mistake can reduce valuation by 10-30%.

For businesses valued over $500K, using a professional business broker or M&A advisor is highly recommended. Benefits include:

• Access to qualified buyer networks
• Proper valuation and pricing strategy
• Confidential marketing to protect your business
• Negotiation expertise (often recovers their fee multiple times)
• Deal structure optimization for tax benefits
• Transaction management and documentation
• Higher success rate (brokers close 2-3x more deals)

Brokers typically charge 10-12% for small businesses, 5-8% for mid-market. For businesses under $500K, owner sales are more common, but advisor consultation is still valuable.