This is a question I get asked regularly. At what point is the best time to sell, close, or float a company? How long should you wait from establishment before you part ways with your business?
The truth is, it depends.
It depends on the type of business, the industry, and your own personal goals and objectives.
In a lifestyle business i.e. one that simply earns enough to provide the owner with a respectable income, the owner might decide to close shop when they are at retirement age – with no worries about trying to identify, contact, and negotiate with potential buyers for the business.
However, not all businesses can take this route – and neither will the owners wish to.
Many business owners will want to receive compensation for the blood, sweat, and tears that they have put into the business over the years in the form of a ‘payout’ from the new owners. This obviously involves a lot of prior planning, preparation, and negotiation – in fact, business owners often find that the point at which they choose to exit their business is often their most stressful period of management.
That’s why it is essential for these types of businesses to plan their exit strategies well in advance when the owner is in a less stressful environment and in possession of a much more objective, calm mindset.
We often advise that the optimum time period from planning to actually exiting a business is around 5 years. But, of course, this can vary depending on the business, the industry, and the goals and objectives of the business owner(s), as aforementioned.
As far as floating a company is concerned, this is, in most cases, even more demanding than selling a company on the open market or to internal or external management teams.
It is highly unlikely that you will be able to trade your company shares on the London Stock Exchange given that this is dominated by enormous corporations. A more realistic expectation would be to float on the AIM or PLUS.
But without secure earning streams and strong growth prospects you can basically eliminate the option of floating entirely.
Again, whilst it is hard to predict whether your organisation will be suitable for flotation during the start-up phase, it’s always a good idea to plan well ahead and work towards your exit strategy from day one – priming your company for the ultimate day of reckoning.
So in answer to the question: what’s the best point to exit a business? Again, it depends – but as a general rule, it should be during a positive time for the company but not too positive in the sense that there must still remain prospects for growth under the new owner(s).
