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Every owner knows that they are going to leave their business at
some point in the future and it's never too early to consider
an exit strategy. After all, the owner will be dealing with what is
likely their most important asset. That said, deciding when the
right time to sell is can be a difficult decision influenced by
both personal and business factors.
Personal Factors
When the business puts greater demand on an owner's time,
energy and resources beyond that which they are willing to commit
or it's no longer fun. If personal priorities change this can
dictate the timing, particularly if the status quo is likely to
lead to value erosion because of the absentee owner, be that
literally or figuratively;
When industry dynamics change beyond the owner's desire or
capabilities to manage the change including technology shifts and
competitive pressures;
When there is a (potential) health problem;
When timely succession is in doubt and planned retirement is on
the horizon. An owner should provide consideration for not only the
length of the divestiture process (typically 8-12 months) but also
any transition period, post closing (typically 1-3 years) that may
be required by the buyer as a means of mitigating risk and ensuring
a smooth change of control and integration process;
When appropriate tax and estate planning for the business owner
and their family is in place. For example, the Canada Revenue
Agency requires a mandatory 24 month holding period for shares to
qualify under the lifetime capital gains exemption rules which
allow for up to $750,000 per individual; and
When the owner is emotionally ready i.e. knowing the answer to
the question, what do you want to do with the rest of your life,
can be critical. Often, the identity of the owner becomes
intertwined with the business and it becomes difficult to separate
the two.
Business Factors
When performance and prospects are peaking, that is, it's
generally best to sell a business following a few years of solid
growth and where growth is expected to continue;
When the market is active, i.e. consolidation is evident and
valuations are high;
When economic indicators are positive; interest rates are low
and capital is accessible;
When industry factors are positive, i.e. a stable regulatory
environment, no imminent threat from emerging technologies
etc.;
When goodwill is transferable and not associated directly with
the individual owner(s) i.e. relationships with key customers and
suppliers have been successfully transitioned to others within the
organization;
When the management team outside of ownership is established,
capable and strong; and,
When key contracts with customers, suppliers, employees have
been executed/renewed and can be successfully transferred under a
change of control.
The recurring theme from both a personal and business
perspective is that you want to sell when value can be maximized.
Sometimes these circumstances happen concurrently, often they do
not. Ultimately, the best timing from both a personal and business
perspective is when you are in control and make the
'choice' as opposed to losing control of the process due to
health concerns or other outside influences.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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