Selling a Business? Entrepreneurs Say You Need To Know This
NEW YORK ( MainStreet) When large companies sell off portions of their business operations, the financial world takes notice. Recently, Nestle sold off its Jenny Craig brand to North Castle Partners, a private equity firm that owns brands like Curves and Red Door Spa.
While the financial details of this deal have not yet been disclosed, Nestle bought Jenny Craig for $600 million seven years ago. GE also made similar headlines recently selling off its air filtration business for $265 million to Clarcor Inc.
What makes founders choose to sell?
An entrepreneur who has put years of his or her life into building a business might never have considered selling it off when starting out. But when faced with retirement or a change in priorities, the notion of selling becomes much more attractive.
While not many businesses will sell for amounts such as the ones that appeared in the news reports above, any business that's built for growth and profitability stands a good chance of attracting a nice offer ... that is, if the owner does things the right way.
"Whatever brings an entrepreneur to the point of selling a business, the sale will be one of the most significant business actions one will take," says Eugene Urcan of Cappello Capital. "Unlike the decisions made while running a business, selling it is an action you will take only once. You get a single chance to put a price tag on years of effort -- and once you sign the sales documents, it's over."
Figuring out the right time to sell
Many people sell their company when things are on the decline, thinking they need to get out while they can. This is the exact opposite of what strategist Debbie Allen suggests. "You want to sell when you are at the top of your game -- peaked out," she says. "Some will say, 'I'm making good money now. Why should I sell?' That's thinking like a business owner, not an entrepreneur."
Experts recommend spending two years of prep time before putting a business on the market. Two or three years of tax returns can show maximum profitability and help get the best price possible.
Examining the marketplace
If a person is serious about selling a business, he or she needs to assess the current market conditions of the industry. Sometimes, things are ripe for a sale, only to turn sour a year or two later.
"I saw companies who turned down an offer in 2005 who couldn't get three-quarters of that price a few years later," says Allan Siposs, a managing director of FMV Capital Markets. "Wait until market conditions are better to sell."
The key is to be in a position to sell when things align themselves to get the owner the best price. Often, a business broker can help entrepreneurs gauge the current conditions and work to get them the best price, sometimes up to 20 percent higher than what the owner could expect to get solo.