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

  1. 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;
  2. When industry dynamics change beyond the owner's desire or capabilities to manage the change including technology shifts and competitive pressures;
  3. When there is a (potential) health problem;
  4. 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;
  5. 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
  6. 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

  1. 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;

  2. When the market is active, i.e. consolidation is evident and valuations are high;
  3. When economic indicators are positive; interest rates are low and capital is accessible;
  4. When industry factors are positive, i.e. a stable regulatory environment, no imminent threat from emerging technologies etc.;
  5. 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;
  6. When the management team outside of ownership is established, capable and strong; and,
  7. 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.