The decision to sell a company can arise from various factors. Sometimes the reasons are business-related, and sometimes they are personal. More important than the reasons, however, is the right timing, which can have a significant impact on the value.

Good reasons to consider selling include the company’s strong growth, good profitability or the significance of its technology in the market. If either of these reasons is not in place, it may be better to wait.

A company might need significant additional resources, such as financing or human capital to capitalize on market opportunities. If cash flow is insufficient and funding is unavailable, selling the company could be considered. Sometimes entrepreneurs simply want to do something else or retire.

Buyers’ motives are either strategic or financial. A company acquiring another for growing its existing business is interested in metrics like EBITDA (earnings before interest, taxes, depreciation, and amortization) and free cash flow which are a crucial valuation metric. The company’s growth rate is also important because it helps convince the buyer of a promising future. Profitability is always more important metric than revenue. The buyer is interested in how much value the acquisition will generate and how much additional operating profit they can achieve.

A pure strategic buyer, however, is interested in entirely different aspects. Such a buyer has a problem that your company can solve. The strategic value varies significantly from one buyer to another. Understanding buyers' motives is invaluable in this context, as it allows you to maximize the company’s value. Market position, unique business characteristics, intangible assets and experienced employees are the most important factors. Your technology remains the same whether your company’s revenue is five or fifteen million.

For a technology company, the right time to sell is when the market demands your technology, as this is when its value is highest. The wrong time to sell is at the market's peak when growth challenges are on the horizon. Buyers are intelligent and know their markets, which is why you must know your market just as well. Excessive optimism can lead sellers to wait too long.

The market and buyers' needs determine the right time to sell. Understanding the market has value. Monitor the actions of larger companies. Is someone entering your market? Who lacks offerings that your company could provide a solution for? Has someone already done what your company is developing? Have your competitors already been acquired?

You will get the best price when you truly understand what is happening around you.

By Vesa Walldén