When is the best time to sell your business?

Everyone knows that timing is important when putting a business up for sale. But when is the ideal moment? Should you take external business factors into account, or only the owner's personal situation?

As the saying goes, "buy on the rumor and sell on the news" (or "buy to the sound of cannons and sell to the sound of bugles"). Should you therefore sell the business when it is at its peak? Not necessarily. Because when you are at the top, the precipice is never far away. It is vital for the buyer to have confidence in the company's ability to generate future profits. Rather than waiting until it reaches its peak, it is better to sell the business while it is still on an upward trajectory. A well-filled order book, a new product, or a new market are all attractive prospects that will motivate a buyer!

What should be done if the company experiences a difficult year in the middle of the sale process? Quite often, this will not rattle the seller, as they have the perspective needed to put this delicate phase into context. On the other hand, the prospective buyer will inevitably be worried. They will wonder whether the drop is temporary or not, and whether they will manage to convince the bank to finance the acquisition.

So what should be done when this happens? Knowing that these poor figures will come to light sooner or later anyway, transparency is essential, as failing to provide it risks losing the buyer's trust. The buyer is almost certainly already questioning the recent situation, and they will appreciate being told the truth. High-quality information and clear-sightedness regarding the company's strengths and weaknesses will build trust, especially if what is announced is borne out by the facts. Given the confidential nature of the information exchanged, this transparency assumes an advanced stage in the sale process and trust in the buyer. Note, however, that it is always possible to anonymize client names, for example.

And if the business is genuinely in trouble, what should be done? There are of course buyers who specialize in acquiring distressed businesses. However, one should not expect to get a great deal with them. Their aim will be to buy at a low price, if possible under judicial reorganization proceedings or bankruptcy, as illustrated by the English proverb "never catch a falling knife." When a company is in trouble, it must focus a great deal of energy on its core business. Putting it up for sale is therefore not ideal, but it can nevertheless be considered if roles are clearly defined and future prospects are clear enough.

If, on the contrary, the company has enjoyed several good years and accumulated abundant cash reserves, the timing of the sale is equally important. Excess cash, which is not needed for the operating cycle (working capital requirement or WCR), can be valued as part of the transaction. Rather than distributing these funds prior to the sale date and paying the 27% withholding tax, the acquirer can use them within the financial structuring of the deal—provided there is sufficient equity and subject to strict compliance with certain constraints that would be too lengthy to detail here.

Very often, it is not market or business factors that dictate the moment to sell, but rather the personal situation of the owner-shareholder. The best time to hand over the reins will be when the owner is ready. However, as the owner approaches retirement age or experiences health issues, business transfer is no longer a luxury but a necessity. Some owners prefer to deny the obvious and continue managing their company as if they were immortal. A lack of self-questioning and the wear and tear of the years can cause irreparable damage. It is not uncommon to harbour regrets upon realizing that the company has declined and lost value over recent years, despite the owner working tirelessly.

Fortunately, the topic is no longer taboo. Numerous awareness campaigns emphasize the importance of anticipating a planned sale. It cannot be repeated often enough: a sale process cannot be improvised; it must be prepared several years in advance. A word to the wise...