Are you getting ready to sell a business for the very first time? If so, then you need to read this essential guide first, as it contains some vital information you really shouldn’t ignore; namely, the importance of choosing the right time to exit!
Yes, you may not realise it, but seasonality has a strong bearing on the effectiveness of M&A deals – or the lack thereof. In a nutshell, this means that the time you choose to sell up could mean the difference between a valuable sale and a disappointment.
Why timing affects your sale value
If you’re feeling disgruntled at the thought that something as seemingly arbitrary as the time of year could have such a bearing on your sale, don’t fret. We’ll explain the ins and outs of M&A timing and why it’s so crucial.
In simplest terms, there are two distinctive M&A ‘calendars’ to be aware of.
The deal-making calendar
In general terms, the first quarter of the fiscal year will see an increase in deal activity. Companies will have freshly established budgets to spend, and new growth strategies to implement, meaning they’ll be hungry to make a deal.
Similarly, the fourth quarter will also see an uptick in mergers and acquisitions, as businesses scramble to complete their deals before the end-of-year.
Conversely, if there is an economic slump during the year, the appetite for acquisitions is likely to taper of and you may find it harder to find a buyer who wants to pay the right price.
Your industry calendar
Each industry has its own ‘seasons’ to be aware of, which could affect what time of year is best to start selling your business. Perhaps certain months bring higher volumes of demand for your products or services. Perhaps new innovations are arriving in waves, or new legislation is set to be adopted that could affect your valuation.
There could even be a sudden rise in mergers and acquisitions within your sector, which would potentially also make it harder for you to find a buyer to purchase your business at your ideal price.
Keeping these various factors in account can have a big impact on how much your business can be sold for.
How to pick the right time to sell your business
So, with various factors to consider, how do you determine the ideal time to sell your company?
Here are some expert tips to keep in mind that should help.
1. Monitor your internal calendar
It’s important to make your business look as appealing as possible to would-be acquirers. In other words, you need to sell when your finances are at their strongest.
To achieve this, keep careful track of your monthly cash flow, net working capital, and your EBITDA. You should also identify major upcoming events, such as new product launches, which would boost the attractiveness of your company.
Pinpoint the 3 months or so when your balance sheet is most favourable to put your business on the market.
2. Match up internal and external calendars
Once you have a designated time frame when your balance sheet will look most impressive, you need to match up this time frame with the external calendars we’ve already mentioned.
Do your market research, evaluate the current M&A and economic climate and consider when the budgets of your buyers will be the most robust.
By trying to find a time when conditions are favourable across both internal and external calendars you give your sale the best chance of offering an impressive return on your investment.
3. Prepare, prepare, prepare
When the ideal time frame has been allotted, it’s time to start getting ready to put your business up for sale.
Make sure all your paperwork is in order, including tax returns, compliance documentation and contracts. Begin preparing marketing materials to promote your company and help it stand out from the others up for sale in your industry. Alternatively, hire a business broker to take over the M&A process on your behalf. They can value your business, create high-quality marketing materials, source prospective acquirers, draw up NDAs and handle every other aspect of the sale.
Finally, spend time planning your own exit strategy as well as how you will help your team integrate to new ownership.
Business selling myths to avoid
There are a few myths and false beliefs for you to be aware of surrounding seasonality and sale value. Adhering to these misleading beliefs could cause you to choose the wrong time of year to put your company up for sale, and result in a lower value
Myth One: Seasons don’t affect my sector
Most industries will follow some kind of seasonal pattern, whether that’s financial fluctuations, supply and demand, or peaks and troughs in M&A activity.
Myth Two: Waiting for peak results always pays off
Putting off your sale to wait for peak results may not bear the fruit you expected. Something unexpected could occur – from a catastrophic geopolitical event to a rise in inflation and interest rates – and you could find yourself in a worse position than you were to begin with.
Instead, it’s sensible to place your business on the market when your balance sheet is appealing even if it doesn’t display the highest results you could achieve.
Myth Three: My M&A team can accelerate any acquisition timeline
M&A has a season of its own, with everyone involved – including solicitors, brokers and accountants – having peak volumes of work at specific times (usually toward the end of the fiscal year and around the time of the Autumn Budget. Don’t forget to take this into account as it could potentially lead to a longer sales timeline.
Need assistance with your sale?
As you can see, there is a lot to think about when it comes to selling your business – and that’s before you even kickstart the M&A process!
To help streamline and simplify the process – and help you achieve a valuable sale – why not get in touch with our team at Harris Acquire? We can manage your business sale from start to finish, taking the weight off your shoulders and removing any stress from the transaction.
To find out more about how we can help, give us a call on 01926 757100 or send a query to Hello@harrisacquire.com.
