There are clearly signs that indicate it's not the right time to sell a business, says Mark Mantovani, principal of Mantovani Holdings LLC. For instance, if there are serious uncertainties around the business it becomes difficult to sell because risk mitigation is very important to buyers. So, if there's pending litigation or uncertainty with significant clients, it's probably not the right time to sell until those uncertainties can be mitigated.
However, while cleaning house is important, one thing he thinks people who are about sell a business should focus more on is their sense of the company's potential.
Here's what Mantovani, speaking earlier this year at the St. Louis Dealmakers Conference, had to say about how to know when it's the right time to sell a business.
Pitch the vision
The first time he sold a business, he says it was remarkably unprepared. It was an early-stage company and the buyers were private equity specializing in early-stage acquisitions. His company, he says, had a lot of issues, but there was a clear vision for what the business could be.
"People invest because they're wanting to profit in the future, so in some respects your vision for what that business could be, given additional capital, additional management support, additional customer diversification or whatnot, your vision is crucial to optimizing valuation," Mantovani says.
The vision for what that business can be and the thought process behind that vision is what, in Mantovani's opinion, sellers should be spending time talking with buyers about because it establishes what the value could be for that buyer.
"A lot of times people who are selling a business are more worried about everything looking neat and clean instead of what that vision for the future is, which ultimately is why somebody wants to buy the business, at least in my in my experience," he says.
Before you get too far down the path
Much of determining when to sell is a matter of lifestyle decisions — where an owner is in his or her career, their family situation. Trying to maximize a sale by timing the market, is, in his experience, unwise.
"We sold some businesses within the last five to seven years because we thought multiples were at an all-time high and couldn't go any higher," Mantovani says. "And they continued to go higher after we began thinking that years ago. So, it's difficult to outsmart the market with respect to those things. So, a lot of this becomes idiosyncratic relative to your personal plans."
So, sellers have to define for themselves what a successful transaction means. Clarifying objectives for the next stage of your career, he says, is really important.
"You really have to think about all of that sort of stuff, and some of that you can walk through with the potential buyers when they're at the table," he says. "But it's important to think about those things and how you want the future to look before you get too far down the path."
