If you’re a business owner, you face a number of challenging tasks and decisions. One of those decisions may be whether to continue as the owner of the business or sell the company and reap the benefits. Selling a business should never be a spur-of-the-moment decision or a decision you make when you’re frustrated and burned out. Instead, it’s important to take time to review the pros and cons of selling your business and decide whether it’s the best decision for your professional life and career. Ask yourself these questions to figure out if the timing is right.
Is it ready to sell?
Most companies aren’t ready to go up for sale until they’ve been in business for at least two years. You will need to produce tax returns and other financial documents to prove the success of the company to any interested buyers. When trying to sell in the first two years, you’ll likely face a lower valuation because anyone buying your company will have to take on additional work. After you have been operating successfully for four years or more, you are more likely to have worked out the kinks and have better processes in place.
Who can help me sell my business?
Working through details of a business deal can get confusing and muddy, so it’s important to have professionals on your side who can help. Most entrepreneurs and business owners don’t have the experience to negotiate contracts and understand the entire sales process. Bring on an accountant, attorney, and business broker to help manage the specifics of the deal. When you rely on a trusted team of professionals, you don’t have to worry about misplacing documents or making decisions that could impact your future.
Most people in the market to buy successful businesses will bring their own team of professionals to the table, so it’s important for you to have the same resources available to you.
How is the market?
The market for selling your business will depend on the industry in which you operate. According to Allan Siposs, a managing director at FMV Capital Investments in Irvine, CA, home improvement companies were extremely valuable in the mid-2000s. Business owners who chose to sell were making substantial returns on their investments. But as word of the increase in this industry spread, more and more people started their own home improvement companies, and the market began to decline. Owners who rejected offers often struggled to get even half of the value of their companies a few years later.
If you’re thinking about selling your company, consider the state of the market for the industry. When the market is down, it’s hard to get a decent price for your business, so it’s best to wait until conditions approve.
What shifts in business and the world could impact my company or product?
As you look at the market, think about how your business can cope with changes on the horizon as well. Technological advancements and increasing globalization are among the many factors that can impact business owners. If your business sells a product for a cell phone that might be replaced in a year or two, think about selling the business before the item becomes obsolete.
Watch for signs that changes might be coming, and try to get ahead of those changes. For many company owners, the constant change makes it too difficult to manage the day-to-day aspects of business ownership, which is another reason you might think about selling.
How will buyers value my company?
As TV shows about entrepreneurs grew in popularity, business owners and interested viewers learned more about the importance of a proper valuation of a company. It’s important to approach a business deal with accurate financial information and figures to back up your valuation. Even if you have the documents, your buyer may still come back at a lower value than what you expect.
Take some time to meet with a venture capital firm or an investor who can help you gauge an accurate value for your company. Doing so can help you look prepared and self-aware, which are both appealing traits to buyers. If you aren’t willing to compromise on the value, you may want to rethink the decision to sell your business. Most buyers are in the business of negotiation, so it’s rare to get exactly what you’re asking for during the first meeting.
You might have some areas in the financial department that need cleaning up before you sell as well. Some business owners and executives run every expense through the company as a write-off, from car allowances to country club dues for golf games with clients. Talk to an accountant about appropriate business write-offs, and adjust your habits accordingly. If you come in with a business heavy with write-offs, your business could look less profitable to the buyer.
What are the dealbreakers?
It’s never fun to deal with disgruntled customers, broken contracts, intellectual property disputes, or other problems in business, but you’ll need to resolve any outstanding issues before putting your company up for sale. Most buyers aren’t interested in taking on these concerns and will use them as dealbreakers to get out of the purchase.
If you’re not sure who is the technical owner of the intellectual property of your customer’s software design, for example, talk to a patent attorney to figure it out. If you do have patent protection on any of your ideas, it’s important to present those as part of the deal. You don’t want to mislead your buyer by making him or her think he or she will get access to a protected idea, only to find out later in the process that someone else owns those rights.
Resolve any financial issues and disputes before you put the business up for sale as well. Make a list of any problems you may have faced at any point since you started the company and figure out if you have resolved them or if they need more attention.
Are there alternatives to an outright sale?
You don’t necessarily have to sell your company outright. Other options include structuring a deal that would pass ownership to company employees through a stock plan, selling a percentage of the company to an interested investor, or taking out a loan based on the value of the company. Any of these options could be better alternatives if you don’t want to step away from your company entirely.
Best timing for selling a business
The timing of when to sell your business is often the biggest challenge. Many entrepreneurs want to hold out for the best possible deal, but doing so can result in taking a loss. If you’re feeling exhausted and frustrated when working at growing or maintaining your business, you might not be able to keep up with growing demands. No matter what your reasoning is for selling your company, you’ll need to consider the timing before signing a contract.
When you don’t enjoy it anymore
Dealing with personnel issues, unhappy customers, and administrative concerns can all add up to make it difficult to run a business. If you’ve reached the point where you don’t want to go to work anymore, this could be the perfect time to sell and take the stress off your shoulders.
When the market could shift against you
When you’re keeping an eye on the changes on the horizon, make sure to watch what’s happening in your industry as well. It’s not easy to predict a burst of a big bubble, but there are some indications that things are shifting away from your business. Increasing numbers of similar or competing business or products can indicate that the value of your business will be on a downward spiral. The launch of Airbnb made a big impact on the hotel industry, for example. These types of changes can push you to sell sooner to maximize the value of your company.
When you get an offer you can’t refuse
When a potential buyer comes to you with an appealing and lucrative offer, it could be the indicator that the timing is right to sell your business. If you launched a new social media platform and one of the major players in the industry comes knocking at your door, think about the payout and what it’s worth to you to sell.
It’s not easy to sell your company, especially when you’ve spent thousands of hours building it from the ground up. But if you’re interested in the benefits of moving on to other opportunities, take the time to consider the timing and exit strategy to make the most of your decision to sell your business.