Getting the timing of your business sale right can make a significant difference to the offers you receive, but it is particularly important when your business is seasonal.
Buyers may be reluctant to invest in businesses that aren’t going to start making money for many months.
An end of season business sales
Seasonal businesses follow a cycle in which activity peaks at certain times of the year. Common examples include businesses that depend on the weather, such as tourism and outdoor activities, and those that are linked to specific events like Christmas.
If you only look at a set of annual accounts, a seasonal business will be just as profitable and one which is not seasonal (assuming all other factors of sales and profitability were equal). Therefore you should be able to get the same sale value irrespective of seasonality. Right? – well not quite.
With a seasonal business (e.g. a campsite) if a buyer looks to take over the business in the Autumn at the end of the main holiday season, they have at least the winter and part of the spring ahead of them where little or no money will be coming in.
Add to that the fact that a lot of maintenance and improvement work will happen in the off season to minimise disruption. So your buyer is looking at a purchase price, plus added maintenance costs yet may not have any paying guests until Easter.
Now consider that a buyer will have limited funds at their disposal. Say they have a £0.5m spending budget. That is not elastic. That is fixed. So they have to allocate their maintenance from that budget and their own personal living costs for the winter ahead. So what they offer for your business has to be less.
A start of season business sale
Let’s flip this scenario. You now sell your campsite in the spring at the beginning of the tourist season. Your buyer doesn’t have to consider working capital for their own living expenses or for maintenance costs so much. They know that income from paying guests is arriving on a daily basis.
Your buyer has time to accumulate cash reserves to cover the loss of income in the next off-season. Because of this, they consider the risk of buying your business much reduced. Their £0.5m budget can stretch further and you may find the purchase offer increases.
- Same business.
- Same annual sales and profit
- Just different timing.
It’s all about the cashflow for your buyer.
When is the best time to sell a seasonal business?
The best time to sell any business will be when it looks like a good investment. Businesses that are profitable and growing will always attract more buyers and reach higher prices. For seasonal businesses, this means that the best time to sell is usually at the beginning of your peak season. Although it can be tempting for business owners to stay on for one more season of profits before selling, you will usually make more if you sell when business is just about to peak. More buyers will be looking for businesses and they will be willing to spend more in the expectation of immediate profits.
The main exception is when a business will need significant work or investment before it can begin to make a profit. Buyers are unlikely to choose a business that needs improvements at the start of the peak season as they will miss a season of profits. In this case, selling during the off season can be more effective. However, it is also worth considering whether you can make the improvements yourself so you can sell for a higher price when business is about to boom.
What preparation do I need to sell my seasonal business?
Selling any business will take time. Although prices and demand are likely to peak near the start of your busy season, you should start preparing for the sale ahead of time. One advantage of selling a seasonal business is that you can use your off season to get your business ready.
You will have time to maximise the value of your business by investing in essential equipment, tackling any potential dealbreakers, and making sure the business is ready to hand over.
Since your business cannot simply be valued on the last few months of sales or the averages for the year, it is essential to have monthly or even weekly sales breakdowns at hand.
Your buyer could be parting with a large amount of money, so they need to know how reliable your in-season sales are, how they build to their peak and how quickly they decline. For our campsite, this would be gradual. If you sell Christmas trees, this peak and decline will all happen within one month.
There isn’t just one season
In our campsite example, there is just one season, but this isn’t always the case. Something like a florist shop can have several seasons in one business. Valentine’s Day, Mother’s Day, Wedding season and Christmas. A clothing store generally has 4 seasons of spring, summer, autumn and winter where the collections change. The manufacturing companies behind retail will follow seasons also.
Breaking down your monthly sales may well expose some seasonality to your business which you didn’t realise you had.
How can I improve my chances of a good sale?
One thing you can do to improve your chances of a better sale and try to eliminate some of the seasonality is to diversify. Try to bring in new ideas to continue your income through your off season.
Going back to our campsite, you might create Halloween, Bonfire Night, Christmas and Valentines special events to bring in some cash.
If your business is traditionally one supplying Christmas Hampers, why not introduce baby hampers, wedding hampers, hampers for all your summer festival essentials.
Brainstorm the one-off events, services and products that would sit well in your business and fill the off-season income gaps.
Start with a valuation
If you have a seasonal business, get in touch and let’s start with a current valuation. Without that, you simply won’t know if you can afford to sell now or if you need to build things for a while longer. Give us a call.