They Say Timing is EverythingThe timing of the sales process is perhaps the most important factor in the entire process. Not only is timing important in the context of the economy in general, but also with respect to the company's performance and the owner’s objectives.
If you only take one nugget away from this article, take this away:
The ideal time to sell is when there are positive trends in revenue and earnings, and there is an expectation of more to come.
The prospect of growth is is very influential in attaining a strong multiple. However, while a valuation is determined by a company's future prospects, buyers often use historical performance to assess future prospects. When I say "historical performance," I mean at least two years of consistent growth. Many businesses grow in steps. A pattern of revenues at $10 million for several years, which then jumps to $25 million for one year, does not present a convincing growth trend. Another jump to $30 million the next year will go a long way to realizing a growth multiple (now we're talking). Ultimately, convincing a buyer to pay a premium depends on on how the growth was achieved, and what the current prospects are.
The selling process is one that can take seven to ten months to complete if things go well. Therefore, inevitably you will run in the single most important question that a buyer wants answered while the sales process is ongoing.....
"Are you on track?"
or its very close cousin:
"Can we have a look at the latest financial month or quarter end?"
Under performing at this stage to what you originally told the buyer is definitely the worst case scenario. If you are four to six months into the process, you will have already received a number of expressions of interest and are likely working with a small group of seriously interested parties. An earnings number below expectations may open up the possibility for a value revision or structure change in an LOI. This may cause serious delays in the process, since an alternate buyer may need to be found. The moral of this story is....don't miss.