I recently closed the sale of a business after working with the owner for about three years. Looking back, the experience reminded me of something that is easy to overlook when planning an exit: sometimes waiting for a better price can come with a much bigger risk.
About three years ago, the owner first contacted me because he was considering selling his business. I completed a valuation and we discussed what the business could potentially sell for. At the time, however, he wasn’t ready to sell. He wanted to wait and see if he could get a little more out of the business.
So he decided to keep operating.
About a year ago, he contacted me again and said he was ready to move forward. I updated the valuation based on the most recent financial information, and we agreed on a listing price. We put the business on the market and received several offers.
At that point, everything looked promising.
Then things changed.
During the due diligence period, the business began to decline. The pipeline that had previously supported the business started drying up, and the financial performance was no longer what it had been when we first went to market.
Eventually, the buyer withdrew from the transaction.
At that point, we had to start over. I continued looking for another buyer, and eventually found one who was willing to move forward. We ultimately completed the sale.
However, there was a significant difference between where we started and where we ended.
The business ultimately sold for only about 20% of the original asking price.
The change wasn’t because the owner suddenly decided to give the business away. The business itself had changed. Inflation, the economy, and the overall business environment had a significant impact on its performance.
This experience made me think about how business owners approach timing their exit.
A lot of owners want to wait for the “perfect” time to sell. They want another strong year, another big contract, a larger pipeline, or higher earnings before putting the business on the market.
That makes sense. Nobody wants to sell too early. The problem is that none of us knows what is going to happen next.
Your business could perform better next year. It could also perform worse. A major customer could leave. Costs could increase. The economy could slow down. A strong pipeline could disappear faster than expected. Or simply, you could feel exhausted and wanted to sell as fast as possible.
Once the business starts declining, it can be much harder to sell it on the terms you originally expected.
For that reason, I believe business owners should start thinking about an exit while the business is still healthy and moving in the right direction.
One way I like to think about it is from the buyer’s perspective.
If you were buying a business, would you rather buy one that is growing, has good financials, and has a healthy pipeline—or one that has already peaked and is starting to decline?
Your business is usually easier to sell when you can show a buyer that the business is performing well today and has a reasonable path to continue performing well after the sale.
Selling a business is not like selling a stock where you can look at today’s price and know exactly what you’re getting. There are many moving parts, and the value of a business is closely connected to its future performance.
So if you’re thinking about selling your business someday, don’t wait until you feel like you’ve squeezed every last dollar out of it.
Plan your exit while the business is still climbing, rather than waiting until it starts coming down.
You may not get the perfect timing, but you can choose to sell from a position of strength rather than waiting until circumstances force you to sell from a position of weakness.
