This is a timeless question that I hear from business owners year in and year out. Valuation multiples fluctuate over time. Sometimes the average is up and sometimes it’s down, but I believe predicting the direction in advance is a fool’s game.
If you could predict a recession a year or two in advance then maybe one could try to sell before things go bad, but I honestly believe this is less likely to succeed than timing the stock market ups and downs since you can sell a stock in the public markets today but you have to plan far in advance for a private business sale that might close a year or more from now.
Market timing for private business sales just isn’t going to work, given the lag between the decision to sell and the uncertain closing date. Some owners will get lucky and hit the timing just right, while others won’t. It’s pretty much a random walk through business sale multiples. It probably makes the most sense for an owner to focus on the average industry valuation rather than the ups and downs, and to figure out the things that can help a business to do better than average whenever a sale might take place.
The most honest answer that anyone can give to the question "Is this the right time to sell?" is this:
For most private business owners in the middle market, it’s the right time to sell if:
- Your company is doing well financially now and you expect it to continue to do well in the coming year;
- You have prepared the company for sale (you’ve done that if you can go on vacation for 2 weeks and not need to respond to any problems while you’re gone);
- You have a compelling reason to want to sell, e.g., retirement, plans for a new venture, etc.;
- It’s not an emergency sale due to death, disability, divorce, partnership dissolution, etc. that puts you in a weak negotiating position (such situations may be unavoidable, but they’re not ideal);
- You’ve thought about it long and hard, and decided that you’re ready to begin a transition to new ownership;
- You’re not just reacting emotionally to an approach by a single buyer, but you’ve really tested the market in a logically planned and executed process; and
- The economy is not entering into a recession.
There are always buyers, even in the depth of recessions, but you’ll tend to do a bit better as a seller when panic isn’t the order of the day. Outside of recessions, which a few folks believe they can predict, the ups and downs in the averages are impossible to predict with any certainty.