Business monetization requires you to consider your business value and your personal goals, but you also need to consider market readiness before you prepare to sell. So many factors in the market can affect whether you have a favorable outcome from your business exit. That’s why it’s critical to start planning early to gain an understanding of probable outcomes based on various scenarios.
Your company’s specific industry, new technology, the economy, and even politics can all affect the eventual sale of your business, which is why getting a good grasp of market readiness now is essential.
Understanding the Right Time for Business Monetization
If you’ve assessed your business value gap and know what changes you need to make, it might be time to start planning the best time to exit your business. But understanding that timing may be more complex than you realize. If too many businesses hit the market at the same time, particularly if they’re in similar industries, that could stagnate the market and cause prices to slump. Considering that back in 2014 as many as 66% of businesses were owned by baby boomers, that’s a real possibility.
However, if business monetization is your goal, you don’t want to hang onto your business for so many years that you don’t get to enjoy the fruits of your labor. A financial or business advisor can help you navigate these pitfalls, as well as examine a range of other factors that could impact the end value of your business sale.
Examining Similar Businesses in the Market
One way you can gain an idea of how your business might perform in today’s market is to look at how other businesses in your industry are performing and how much they sell for. If a high number of similar businesses are being acquired or merging with other entities, it may be worth asking what is driving this. Do these businesses expect the market to change, so are selling at a perceived “high”? A business expert can help you better understand what drives M&A within your industry.
Industry Outlook
Another factor to consider is the overall industry outlook. For example, AI and machine learning are currently in a period of growth with a good outlook for the future. This is because more and more industries are adopting AI, allowing for increased investment and disruption of existing trends in technology. For a company in the AI industry that has good business value, exiting now may be profitable but exiting later could be worth even more.
Conversely, drone manufacturers are experiencing an unprecedented decline. This is in part due to a reduction in defense contracts plus a scarcity of new customers. It would make sense, therefore, for these types of business owners to consider how they could exit now before the industry declines further.
Overall Market Factors
Of course, there are many factors that will affect all businesses, regardless of industry. Economic factors are key here, with global events being pivotal in recent years. An obvious example is the recent pandemic situation. Many businesses, sadly, did not survive the downturn in face-to-face business and didn’t have time to adapt and change their customer engagement methods before suffering devastating financial losses. Businesses that focused on creating virtual versions of their products and services did much better. If you take potential events like this into account when planning, you’ll always have a worst-case scenario contingency plan.
A period of recession can be difficult for many businesses. If your financial advisor suggests a period of recession is looming, you may be tempted to get out ahead of the rush. But, of course, plenty of businesses weather recession well and may come out even stronger. If your business supplies essential products or services, whether to consumers or other businesses, then you’ll most likely be in demand regardless of the economic situation. However, if you supply luxury goods or niche services, your company may be less recession-proof.
You also need to keep an eye on current interest rates. As interest rates increase, economic growth could decline, which can have a negative impact on the potential worth of your business. Ultimately, your business is worth whatever someone is prepared to pay for it. That’s why we recommend examining your business value gap carefully, as well as understanding your personal value gap so you know exactly what you want to get out of your business exit strategy.
Consider creating a planning team specifically for your business transition. Treat your business exit as you would any other major deal, with careful forecasting, projections, and a plan for every eventuality. Being prepared for changes in the market means you’re more likely to be satisfied with the outcome of your business sale.
Your business is your biggest asset. Understanding market readiness for business monetization can help you maximize that asset. Work with an expert business advisor and financial advisor to help make your business transition as profitable as possible. The Association for Enterprise Growth can help. Contact us.
Image Credits: Photo by Towfiqu barbhuiya on Unsplash
