According to Brian Bonar, achieving a good sale at the right price must be done at the right time. Many companies have not yet recovered from the economic crisis of COVID-19. Whether or not to sell their company is essential for the entrepreneur.
Reasons To Sell Your Business
Several reasons can justify the choice of selling a business by an entrepreneur. The most common reasons given are:
· Changes in personal life: It can be a divorce, health problems, disability, family obligations, retirement, etc.
· Need for liquidity: the entrepreneur wants to diversify his investments
· Personal liability: allows you to relieve yourself of tax obligations, company debts, and other charges that the entrepreneur is no longer able to assume
· Exploring new horizons: the entrepreneur wishes to devote himself to other activities. According to Brian Bonar, it is common in most cases.
· Advancing the business
· Absence of competent heir in business management
Choosing The Right Time To Sell Your Business
The timing of the sale plays a key role in its success. It is suitable that you choose to sell in one of the following periods:
· The growth phase begins 3 to 5 years after the company's creation. The turnover is still developing. It is when it begins to be profitable but still achieves a fairly modest turnover. The buyer sees an opportunity to seize, says Brian Bonar.
· The transmission phase: the company is still profitable and continues to develop, but with a relatively lower rate of development than during the maturity phase. This period is generally from the company's 8th to the 12th year. During this phase, the buyer sees an opportunity to get a good price.
· Before the period of decline: the company is still showing excellent results but is no longer growing. It can continue to attract buyers.
· Outside these periods, the company risks selling at a very low price.
There are four main methods to evaluate its selling price:
· The patrimonial method: is a question of evaluating the company on what it possesses by making an inventory of its assets (tangible, financial, and intangible). It requires mentioning liabilities. Its value is accessible by its net situation or shareholders' equity, including unallocated profit, capital, and reserves.
· The comparative method: The company evaluations depend on the value of its competitors. It is a question of putting scales or a multiplier coefficient on its turnover. Pricing may vary based on location, local business selling prices, and other factors.
· Empirical method: It considers the company's prospects, i.e., its value is equal to the cash flow that the company could generate over the next 5 to 10 years.
· The economical method: the company's value depends on its profitability. This method consists in defining the profits produced by a company based, among other things, on the net result, the operating result, or gross cash flow.
It is better to consult with a professional like Brian Bonar before selling a business. It will help you smartly plan things.