While there are drastic differences between selling a business and a piece of property, there are certain common fundamentals with market timing being the most critical. The good news is that unlike real estate when there are cycles of seller and buyer markets, the supply/demand curve in business sales ALWAYS favors the seller. Let me explain: On the buy side, there are always tons of people looking to buy a business; most never do. On the sell side, most businesses listed for sale, never sell. However; there is ALWAYS a shortage of good businesses. In fact, when a good business hits the market, it can be under contract within days.

Now that you know you can always find a buyer for a good business, lets get back to when its the best time to sell.

When Business Is Good...

Undoubtedly, the best to sell is when the business is at, or near its peak of revenue and profitability in its recent history with a few solid prior years of growth. This does not mean you think its at the top and will decline. The peak simply indicates that it is on an upward trend compared to prior years. Or, you feel that you have taken the business as far as you are capable of doing and someone else either with new , or different skills, can take it to the next level. Think of it this way: if the business were an athlete, when would be the best time to be eligible for free agency? Right after a career year right? The same holds true for a business. The best time to sell are when things are going well. Youll get a higher price, better terms, and a quicker sale (on this note, you may be interested to learn that the average business takes 7-8 months to sell). Trying to sell a declining business is simply more challenging for everyone on the sell side.

While it would be ideal to sell when the business is on a high note, it is even better if the business has demonstrated several years of stable revenues/profits is also considered an excellent time to bring it to market. Keep in mind that one of the greatest unknowns to a buyer is whether the business will transition to them and continue as it was before. Having the ability to show them several prior years of stability will go a long way in soothing their worries.

What If The Business Is Not Doing Well?

There can be reasons beyond your control that force you to sell a business when things are not going well. In these cases, you need to do what you can to get the best deal possible. If getting out is the most important thing, then youll want to do the following:

* Address any immediate problems with the business. Without being reckless, decide what may be the one or two biggest issues/negatives that a prospective buyer may identify in the business. Then, do whatever you can do either repair it, or to lessen the severity of the problem.

* Write up a detailed and realistic business plan that you can present to prospective buyers that outlines exactly what you would do over the next one to three years if you were not forced to sell. By laying this out in a realistic and logical fashion, a buyer will be able to see that he can execute the plan. Above all, be realistic. This is not the time to be delusional. This plan may ultimately be your biggest sales tool.

* Be open to a deal that may involve a larger than usual seller note, or earnout/performance based term whereby you can get a higher price based upon the future, short-term performance of the business.

What Buyers Want and Need

The reason why people will buy existing businesses (often paying a premium) versus starting one from scratch is because there are some known factors that can mitigate their risk such as:

* Immediate cash flow

* Built in infrastructure

* Historical financial data

* Customer base

* No start up hiccups

Given this, business buyers will pay a premium for business where revenues and profits are trending up, or, at the very least, are stable. Most people do not have the experience to turn around a declining business, especially when they havent done so before. The typical small business buyer mentality is: takeover on Monday, collect a paycheck on Friday (a bit of an exaggeration, but not much). Plus, it is far easier to finance the purchase of a growing business than a declining one. This is certainly true when government loan programs are in place that may use the worst of the last 2-3 years of tax returns as a basis for the business to service the debt.

Warning: Leave Some Juice in the Fruit not Cash on the Table

It can be very tempting to keep hammering away at the business when things are going well. Youve worked hard, the fruits of your labor are paying off, the systems are in place, and you have a solid comfort with what you do each day. These are all rational thoughts. Also, when a business has experienced some ups and downs, it seems almost crazy to consider selling when things are consistently good. Yes, it may seem hard, you make hay when the sun shines so be opportunistic and sell it when you think it is at, or near the high.

A buyer must be able to see that the business has a very viable future with them as the new owner. You need to have the business operating well, with a bright outlook. You may find yourself in a situation where new business is coming in or there are some lucrative contracts pending. It would be easy to convince yourself to postpone the sale and benefit from these revenues. However, these are precisely the situations that buyers want to see, and have in place when they take over. Although these could trigger an earnout or performance type deal, nevertheless, providing a bright future for a buyer is very enticing to getting a deal done; which is ultimately the entire objective of this exercise.

While there is always a market for good businesses, the amount of money and deal terms you could benefit from when the business is doing well, is staggering compared to selling a declining one. I like to compare it to the toy business that I was involved with about ten years ago. We sold licensed or themed merchandise. When the license was hot, my dog could have gone to the major retailers and walked out with orders, but when a licenses popularity dies, I couldnt give the product away. It could have been easy to get caught with a warehouse full of inventory that could wipe out all the profits we generated when it was popular. So, my partner and I decided that once a license hit its peak (at least in our estimation) we would be sold out. No more inventory. Sure we missed out a bit of profit in one or two licenses but we never had to liquidate product and wipe out all the prior profits. In all, we made a lot of money.

The same holds true for a business. Sell when its doing well. Better yet, sell it when it is doing great. It is much easier to convince any buyer to pay a premium when the business is thriving versus trying to even find a buyer when the business is in decline. Moreover, with the number of buyers, and the shortages of good businesses, you may wind up having several interested parties bidding on your business since theres always a shortage of good businesses on the market.

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