Selling a business and achieving liquidity is likely to be the single most important financial event for a private business owner. Timing is perhaps the most critical factor to securing maximum value in the sale of a business.

Typically there are three different types of timing associated in the sale of a business: seller timing, buyer timing, and market timing. Examples of each are provided below:

Key Factors that Drive Timing

Seller Factors:
Lack of capital
Growth beyond comfort level
Boredom / burnout
Other interests

Market Factors:
Favorable economic climate
Low interest rates
Advantageous tax treatment
Government regulatory changes

Buyer Factors:
Meeting growth expectations
Slow organic growth
Increasing competitive pressures
Diminishing market share
Globalization of industry

While numerous factors may drive a seller to seek immediate liquidity in their business, unfortunately, the needs of the buyer and the conditions of the market ultimately dictate timing and value

Determinants of market timing

• Market timing is critical when evaluating the right time to sell a business. The economic climate, interest rates and the tax and regulatory environment all impact timing.

• Interest rates are at historically low levels, reducing required rates of return on investment (“ROI”) for premium buyers of companies. Lower required ROIs allow premium buyers to pay more for acquisitions than ever before.

• Low long-term capital gains tax rates are allowing sellers to retain more value than ever before. Currently, a seller can enjoy a 15% long-term capital gains tax rate (the lowest in history).

Determinants of buyer timing

• Public company premium buyers are pressured by Wall Street to meet revenue growth and earnings expectations. These buyers therefore actively monitor buying opportunities in order to rapidly improve upon limitations or weaknesses in their businesses. Premium buyers purchase companies to increase market share, expand geographically, acquire new products and gain competitive advantages.

• Favorable accounting treatment for European buyers ending in 2005 has spurred cross-border M&A, driving up values for businesses and forcing U.S. buyers to match European offers in order to compete effectively.

Understanding and taking advantage of timing will ultimately lead to highest possible valuation for your business.

http://www.TotalBusiness.com is a Website that provides business owners with the information they need in order to successfully start, manage, grow, and sell their businesses.

The site features over 3,000 articles and 60 guides on business topics such as starting a business, financing a business, sales and marketing, building a website, setting up an office, hiring employees, and selling a business. The site also contains articles on legal and accounting issues affecting businesses and allows business owners and entrepreneurs to get free expert advice from local lawyers or accountants. The site contains over 1,000 business forms and agreements that are helpful to business owners and provides a business directory with over 1,700 merchants who provide services specifically for small businesses.

Eran Salu, JD,MBA,CPA is the Founder and CEO of TotalBusiness.com

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