Market Timing: How Do You Know It's the Right Time to Sell Your Business?
As you walk out of the restaurant after another monthly business owner networking group discussion, you are perplexed. Things have been going well with your business for the past two years and today you had a guest speaker from an investment bank. He showed many charts and graphs suggesting that there has never been a better time to sell your business.
You’re feeling a strange pressure like you should sell, but it’s unsettling. You haven’t really thought much about life beyond your business yet and you think you’ve still got some good years left in you. At the same time, it feels like you might miss your window after today’s lunch.
Recommended Related Read: Too Soon? When is the Right Time to Start Exit Planning?
When to sell is an age-old question. In most cases, we can only answer this question years later with the benefit of hindsight. Trying to figure out the exact right moment to sell your company is an exercise in futility. That said, let’s discuss what we can and cannot say about market timing with the goal of landing some practical, actionable advice.
Factors Outside of Your Control
Certain inputs to the market timing process are completely out of your control. These include tax policy, interest rate policy, economic recessions, new technologies, etc. You cannot control these factors. In most cases, you cannot predict them either, and when you try to you often end up looking foolish.
We can, for example, say in retrospect that it was generally good to sell your internet company in 1999 instead of waiting until mid-2000. However, for Amazon, it would have been a bad idea. 99% of its value as a company was created post-2000.
In 2016, a lot of business owners thought it was a good time to sell before Hillary Clinton was elected President and she increased taxes. In the end, Donald Trump was elected and he decreased taxes.
We could go through a myriad of similar examples further demonstrating the futility of trying to forecast all of these factors without the benefit of omniscience.
Factors Under Your Control
While you may not be able to predict the perfect moment to sell, you can determine when it is a bad time to sell. And there are many factors under your control to make sure you’re not the one selling at the wrong time. Just a few of these factors include avoiding too much debt, diversifying your customer risk, and following through on strategic initiatives.
For example, we know that financial crises (e.g. 2008-2010) are generally bad times to sell your business voluntarily. And if you have too much debt, you may not be able to withstand an income disruption long enough to survive. On the other hand, if you are well-capitalized you may be able to find opportunity in the chaos.
If you mind the factors you can control, you will be in the best relative position to deal with whatever comes your way. When you can position your company in this way, the question of market timing can shift from, “When should I sell?” to “When do I want to sell?” This second question will be based on your own personal and financial goals in addition to market timing.
Recommended Related Read: No Decision Is Still A Decision
If you can be satisfied in all aspects of your life post-sale, you don’t need to worry as much if you time the market to perfection.
Have you ever thought much about selling your business? Yes or no, it’s never too early to start exit planning. At Doescher Group, we help business owners exit on their terms. We don’t have a crystal ball about the future, but we have tools to help you be better prepared for whatever curveballs life throws your way. Reach out to Doescher Group to learn more.
