Business Challenge: Is This the Right Time to Sell? VR Business Brokers Provides Guidance

By: Business Wire | 12 Jan 2010 | 10:00 AM ET

 

McKINNEY, Texas, Jan 12, 2010 (BUSINESS WIRE) -- Facing a market with fierce job competition and 10 percent unemployment, laid-off middle managers and professionals are scrambling to replace their incomes. In a tight economy, displaced professionals may consider becoming business owners more seriously than they would in better economic times. Consequently, many unemployed workers with financial resources now are looking for established businesses for sale.

Buying a viable, established business promises to generate income for these professionals faster than starting a new company.

This trend can be seen in the historical growth patterns of franchise organizations. In periods of high unemployment, more unemployed professionals become entrepreneurs by buying new franchise licenses and established franchise operations than during low unemployment cycles.

For the business owner, determining the "right" time to sell a company is challenging. The ideal time is when profits are at a peak, sales and the economy are growing, and a huge pool of prospective buyers is vying for businesses.

However, today's economy may still represent an opportunity for business owners because of a larger pool of potential buyers, such as laid-off middle managers and professionals. Even if a business is suffering due to the economy, this may be the right time for the owner to sell.

As any business owner knows, earnings drive value. The market value of a business closely follows both its financial performance and bottom line. When sales and earnings improve, business value increases. If sales and earnings decline, the company's value decreases.

In timing the sale of the business, the owner first needs to critically evaluate his or her level of commitment to the company. An owner who is fully committed to the business and who is prepared to turn things around should delay selling until the company's financial performance improves. However, the owner who was already just a couple of years away from selling or who is not fully committed should consider selling now, although the timing may not be perfect from a financial standpoint. If this owner waits and sales and profits continue to slide, the company's value will spiral further downward. Deciding to wait for things to improve may seem like a safe move but it is actually very risky.

Generally, an owner should wait to sell the company if he or she: -- Is fully committed to the business.

-- Is certain a turnaround is possible.

-- Is willing to keep the business for another three to five years, which is required to turn things around and produce at least two to three years of solid financial performance.

Even in today's economic climate, the business owner should sell now if he or she: -- Is not fully committed to the business or willing to do what it takes to turn it around.

-- Is not sure a turnaround is possible or if the risk of a successful turnaround is high.

-- Had already planned to sell in one or two years and thus is not prepared to work in the business for another three to five years.

Deciding to sell a business is a critical move that requires the right timing.

To analyze their company's market value, determine the best time to sell, assess the length of time needed to actually sell the business, and develop an exit strategy, owners should seek professional advice from a business intermediary.

About VR Part of the VR Business Broker network, VR Business Brokers of McKinney offers privately held businesses advisory services in all phases of the transaction, from exit strategy planning, initial valuation, market analysis, packaging and marketing, qualification of prospective purchasers, negotiation and due diligence to post-closing transition planning. For more information, please call 214-733-8282 or visit www.vrmckinney.com.

With 30 years as the world's only network of full-time professional business intermediaries and more than 125 locations, VR addresses the needs of small and midsized businesses. VR's global headquarters are located at One East Broward Blvd., Suite 1500, Fort Lauderdale, Florida.