The market has shifted, and for many, fast-track growth seems like a distant dream. Investors and buyers are treading more cautiously but there is still good money available for shareholders to sell or take investment where the business is profitable, predictable, and robust.
So, you might ask “Why sell your business in a challenging market?” The answer to this question lies in the scarcity of robust, money-making companies during tough times, which piques the interest of investors and buyers when one becomes available. Moreover, as organic growth slows down, acquisitions become one of the few ways to achieve scale and foster innovation.
Many business owners tie their self-esteem to the success of their venture, and a successful exit is integral to this assessment, both in terms of value and timing. However, this attachment can lead to flawed strategies based on market misconceptions and arbitrary financial goals. Owners facing tough times may struggle to think clearly and objectively, especially in volatile conditions where they may be involved in a lot of ‘firefighting’ and often face more ‘bad’ days than ‘good’.
To sell your business requires a fresh, impartial perspective, which can be challenging in uncertain times. Nevertheless, exit markets still hold opportunities for high-quality, profit-generating companies. Your financial target may still be within reach, and this could be an opportunistic time to invest your business sale proceeds. Long-term markets have historically shown resilience and considering that we have recently experienced the longest bear market in history, the current moment presents an attractive opportunity to sell your business and to invest.
Should you Sell your Business or Not?
The decision to sell your business and consider what life might look like after the exit is a complex and highly individual choice. Here are some key considerations to help you determine whether selling your business is the right decision for you and what to expect after the exit:
- Timing and Purpose: Selling a business is a significant decision, and timing is critical. Consider what you would like to come next, as it’s not just about retirement and leisure – rarely do entrepreneurs simply retire.
- Choose Experienced Advisors: Work with advisors who have a track record in M&A and take time to understand your goals and journey.
- Customer-Centric Approach: Building value in your business before sale involves prioritising your customers and creating a strong, sustainable business.
- Recognise Risks: While you want to benefit your team, remember that the timing and method of selling ultimately depend on your decision as the business owner.
- Plan for Taxes: Understand the tax implications of a business sale and explore tax-efficient options. Today’s low Capital Gains Tax regime is helpful but may not last.
- Financial Preparedness: Calculate your net proceeds, account for tax liabilities, and visualise life post-sale. What will be your annual financial requirements to sustain your retirement lifestyle?
- Self-Reliance: Your success and financial security depend on your decisions and actions, so take care of yourself and stay healthy.
- Do not Compare Yourself: Success can be defined in various ways, so avoid comparing your journey to others.
- Focus on Strategy: Stay focused on your business’s strengths and avoid distractions.
- Cultural Fit: Ensure cultural compatibility if your exit involves a merger or earn-out consider seller protections in the deal.
- Sell Your Business and Invest the Proceeds: Selling your business can provide financial freedom and the opportunity to secure wealth, time, and capital. When investing the proceeds, consider a sustainable lifestyle plan, diversification, and tax efficiency, and look long-term. Be patient.
- Unforeseen Challenges: Be prepared for unexpected obstacles when selling, but with the right team and solutions, they can be overcome.
- Diversify and Wait for the Bull: Consider diversifying across various asset classes to better manage returns over time and consult with experts on defensive investment strategies. It’s worth noting that in 73 years, stock market declines have typically lasted more than 10 months before reaching their lowest point, with the current bear market being the longest on record.
- Cash Flow Modelling: Plan for your ideal retirement and factor in unexpected challenges, higher costs, and inflation. Ask questions like, “When can I afford to retire and with what standard of living?” “How much and when can I gift to my children, and would my family have enough in the event of the unexpected?” “What should I be doing with my surplus income and/or draw on my capital?”
- Tax Wrappers: Explore the potential benefits of optimising your tax situation by utilising different tax vehicles for income and capital-generating investments. Consult with experienced wealth managers and advisers for more information.
- Embrace Change: After selling your business, you may experience a phase of “seller grief,” but it will lead to the next stage of your life.
- Recurring Revenue: Consistent income is crucial for driving higher business value.
- Stay Connected: Maintain relationships with valuable contacts gained during your business journey.
- Travel: Post-sale travel can be rewarding, but do not underestimate the importance of home and family connections.
There is a distinct possibility that the UK could experience a technical recession in 2024, marked by two consecutive quarters of negative economic growth, or more. Historically, recessions have seldom been averted when interest rates rise, and lending criteria become stricter. In the event of a recession, running a business could become significantly more challenging. These are compelling reasons to explore opportunities on when to sell your business or make investments, even in the face of economic headwinds.
When considering if you should sell your business or take in a private equity investment, remember that it is a leap of faith. While the dream might be to de-risk, or never work again, in today’s fast-paced world, that is seldom achieved and is often not as desirable as it might seem on paper. Nevertheless, having enough capital gives you the freedom to choose your path. The required amount of capital depends on your lifestyle, but it is crucial to consider factors beyond money, such as experiences, time, and health. Before selling your business, analyse your finances comprehensively. The three exit foundations when selling your business are – your business and its strategy, your family and thirdly, you as an individual.
To determine the right time to sell your business, it is also essential to consider what is best for your business – evaluate the overall health of your company, the market conditions, and your circumstances. If a business sale or investment can help you de-risk or create a strong personal balance sheet and a surplus of time, you may find more ’good’ days than ’bad’.
If you are interested in the “right exit” Contact Avondale Corporate
Avondale is a leading business advisor that helps ambitious owners buy or sell companies, secure investments, grow their businesses and enhance shareholder value. If you are thinking about when to sell your business or looking for investment and would like further information on how we can help, please call us for an exploratory discussion without obligation at +44 (0)20 7788 8250 or email us at av@avondale.co.uk for further information. You are also invited to register to join our next seminar on the 16th of November where we will be discussing the “Art of Business Valuations and Preparing for Sale.”
