The best time Featured

7:52am EDT May 24, 2005
Two parties are involved in any given business transaction, a seller and a buyer. Both have motives for their actions - the seller desires a profit above the initial investment, and the buyer desires an investment that will generate a reasonable or expected return.

However, as the old adage warns, "It's not a seller's market, it's a buyer's market." Therefore, it goes without saying that buyers primarily purchase marketable investments.

What is a marketable investment? Marketable means an investment that is in demand or saleable and capable of being marketed. As you consider placing your company for sale in the marketplace, does the term marketable apply to the business as it exists today?

Probably not.

So when is the best time to sell your business? When you're ready to sell it? Or when the business is marketable and ready to be sold? Privately owned or closely held businesses are sometimes considered unmarketable in that they lack an available and ready market or prospective buyers.

This is because, among other things, closely held businesses are not traded or registered on a public exchange.

However, closely held entities may be considered marketable from the standpoint that they provide an investment vehicle capable of generating acceptable future returns for an investor. Approximately 90 percent of businesses in the United States, including one-third of the Fortune 500, are not publicly traded.

A business owner contemplating the sale of a business should keep in mind that competition in the closely held marketplace is steep, and the pool of potential investors is much smaller than that available to publicly traded companies. Essentially, it is a beauty contest, and the business for sale needs to stand head and shoulders above other companies competing for a limited number of investment dollars.

How can this be accomplished? Through planning. Planning your exit strategy is a key variable if you ever hope to receive a desirable price upon the sale of your business. You must develop a plan, execute that plan, monitor the results achieved and continually modify the plan while charting your course to sale.

As a business owner, not only should you gauge the health of the business on a regular basis, you also should monitor its attractiveness with each strategic step taken toward exit enhancing that attractiveness to prospective outside buyers whenever possible. A business valuation is as important to an exit strategy as a scale is to an individual's health and diet program.

How can you possibly assess and gauge accomplishments without some means of measurement? Preparing to sell your business should be a planning regimen you adhere to in order to accomplish your long-term goals, whatever they may be. A

professional business valuation, conducted by an experienced, accredited valuation expert, allows for a business owner to execute a strategic plan and annually track the resulting impact of that plan on the value of his or her business interest.

Erin Hollis, AVA, is the business valuation manager for Accountancy Associates LLC, a related company of International Profit Associates. Reach her at (800) 531-7100 or www.ipa-iba.com.