Three clocks are running. You control one of them, and it’s the one that matters most.
Every owner asking when to sell is really asking whether he’s about to leave money on the table.
Here’s the answer nobody in the business likes giving. The market timing question is the least important of the three, and it’s the only one most owners think about.
Three clocks
There’s the business clock, which is whether the company is ready to be sold. There’s your clock, which is whether you’re ready to leave. And there’s the market clock, which is whether buyers are paying well right now.
You control the first one completely. You control the second one mostly. You control the third one not at all.
Guess which one owners spend their time watching.
The business clock
A business is ready when a buyer can look at it and not find a reason to discount it. In practice that means:
- It runs without you. The single biggest factor in the multiple, and the slowest to fix. If your company can’t survive ninety days without you, nothing else on this list matters yet.
- The books are clean and tie to the tax returns. Buyers don’t punish messy books with questions. They punish them with a lower price.
- Revenue isn’t concentrated. One customer at 40 percent of revenue doesn’t lower the price so much as it changes the structure, usually into an earnout.
- The important relationships are papered. A handshake worth eleven years to you is worth nothing to a buyer.
- Earnings are going the right direction. Flat sells. Growing sells for more. Declining sells for a lot less, and a decline you can see coming is the strongest argument for going to market now rather than next year.
Most owners are two to three years away from this. That’s not a reason to wait. It’s a reason to start, and it’s what exit planning is for.
Your clock
The one that decides more deals than any spreadsheet.
Two questions, and both need an answer you can say out loud.
What number would you accept? Decided in advance, with your CPA, based on what you actually need. Not what the business is worth to you emotionally, which is a number no buyer will ever pay.
What are you doing on the Tuesday after closing? Owners without an answer here back out in week ten and blame the escrow. I’ve written about what that costs and why it happens.
If either answer is fuzzy, your clock is not at zero, whatever the market is doing.
The market clock
Now the part everyone asks about first.
Buyer appetite moves. Credit gets easier or harder, which changes what an individual buyer can borrow against your earnings and therefore what he can offer. Private equity moves in and out of industries. Some sectors run hot for a couple of years and then don’t.
All of that is real. Here’s why it should not run your decision.
You cannot see the top until it’s behind you. Owners who wait for a better market usually wait through one, because the year that felt too early looks excellent from two years later. Meanwhile the two clocks you actually control keep running, and one of them is attached to your health.
The practical version: a prepared business sells well in a soft market. An unprepared business sells badly in a hot one. Preparation beats timing, and preparation is the part you own.
Signs it’s time
- The business runs without you and you’ve proved it with a real absence
- You know your number and it’s achievable at current multiples
- You know what you’re doing next
- Earnings are stable or growing, and you can explain the trend
- You’ve stopped making the investments the business needs, because you can feel yourself checking out
- A qualified buyer has approached you and the timing is otherwise right
That fifth one deserves attention. The moment an owner stops reinvesting is the moment the business starts declining, and declines show up in the multiple about eighteen months later. If you notice yourself deferring the equipment, the hire, the software, that is your own clock telling you something before you’re ready to admit it.
Signs it isn’t
- You’d be selling into a decline you haven’t explained to yourself yet
- Your best year is next year and you can name why
- You have no answer for what comes after
- The business would stop without you next month
- Your books wouldn’t survive a quality of earnings review
- You’re reacting to one bad quarter, or one good offer, rather than to a decision
The one situation that changes everything
An unsolicited offer.
It happens more than owners expect. A competitor, a customer, a private equity group working your industry. And it is flattering, which is exactly the problem.
An unsolicited offer is usually below market, because there’s no competition in the room. The buyer knows he’s the only one at the table and he prices accordingly.
That doesn’t mean turn it down. It means find out whether you’re ready before you find out what he’ll pay, and get somebody testing the number before you sign anything that grants exclusivity.
How long it takes once you decide
Preparation: one to three years, and it sets the price
Marketing to letter of intent: three to nine months
Letter of intent to closing: 60 to 120 days if diligence is clean
After closing: one to three years for escrow, transition and earnouts
From deciding to money in the bank, plan on a year, and closer to two if the business needs work first. Which is the real answer to “when should I sell.” If you want to be out at 65, you started at 62.
Frequently Asked Questions
When is the best time to sell a business?
When the business is ready, you’re ready, and the market is reasonable, in that order of importance. Owners who wait for a perfect market usually sell in a worse one, because the clocks they control keep running.
Should I wait for a better economy?
Rarely. A prepared business sells well in a soft market and an unprepared one sells badly in a hot market. You can’t see the top until it’s behind you, and the years you spend waiting are years the business gets more dependent on you, not less.
How do I know if my business is ready to sell?
Start with whether it would still be running if you disappeared for ninety days. Then clean books that tie to your tax returns, no single customer at an outsized share of revenue, papered relationships, and earnings you can explain.
Is it bad to sell during a decline?
It costs you, but waiting through a decline you can see coming usually costs more. A buyer prices the trend, not the last good year. If the decline is structural rather than temporary, going now is often the better of two imperfect options.
How old are most owners when they sell?
Later than they meant to be. The pattern I see is an owner who planned to sell at 62 and is having the first serious conversation at 67, having lost the five years that would have moved the multiple most.
Someone offered to buy my business. Should I take it?
Find out whether you’re ready before you find out what he’ll pay. Unsolicited offers are usually below market because nothing is competing with them. Don’t sign anything granting exclusivity until somebody who works for you has tested the number.
How long does the whole process take?
Plan on a year from decision to funds, longer if the business needs preparation first. Anyone promising ninety days is selling something.
One Hour. One Price.
Sixty minutes on the phone. Just you and me, talking about your business.
I’ll tell you honestly which of the three clocks is actually holding you up, and whether you should be selling at all right now.
It costs $1,000.
Most business owners get one shot at their exit. One. The cheapest hour you’ll spend on it.
This page is general information about how business sales work in Texas. It isn’t legal advice and reading it doesn’t make me your lawyer. Every deal is different, and the details are where the money is.