How to Decide When to Sell Your Business
A contract that is being signed.
For many entrepreneurs, selling the business they created is the ultimate goal. Some people start their companies with the intention of keeping them (and working within them) as long as they can. For every company, a change in ownership is inevitable. Even family-owned and operated companies will have to pass from parents to children, throughout the generations.
Even though selling a business is common, it can be a tricky process to figure out. Not only are there dozens of factors to consider, both internal and external, but selling a business is an intensely personal decision.
Fortunately, this guide will provide you with the help you need.
Deciding to Sell a Business: Where to Start
You’re interested in selling your company, but how do you know you’re making the right decision? Many things will influence your timing. These include internal factors, like the growth potential of your company, the stability and commitment of your employees, and your health. You’ll also have to consider external factors, including the economy and the costs of selling a business.
8 Good Times to Sell Your Company
While all businesses are different, selling your business at any of these eight times is likely a wise decision:
1. Your business is doing well.
2. You’ve created an exit plan to follow once the sale has gone through.
3. You are no longer enjoying running your business.
4. Selling your business would help fund your retirement.
5. You’ve received a very attractive, unsolicited offer.
6. You have a new lifestyle in mind for when you leave your company.
7. The industry around your business is growing.
8. Your kids are ready to take over your company.
Regardless of what your company does, you’ll also have to evaluate other, external factors before you sell your company. These include the finances of selling a business and your local economy.
7 Times You Shouldn’t Sell Your Business
Just like there are good times to sell a business, there are also bad times to do it. These include the following seven moments:
1. The economy is bad, and nobody is buying.
2. You have serious health problems.
3. There is a new competitor threatening the security of your company.
4. You are facing impending litigation or lawsuits.
5. Your business is facing any issues that would make a sale difficult.
6. You love what you’re doing, and you still enjoy running your business.
7. Your industry is getting smaller.
How to Decide if You’re Ready to Sell Your Business
If you think you might be ready to sell your business, it’s smart to ask yourself the following questions:
Is Your Company Ready to Sell?
While being objective about your company can be tough, it’s important to ask and answer this question honestly. Is your business really ready to sell? According to Entrepreneur, it’s wise to put in at least two years of preparation before you list your business on the market.
If you haven’t done the research, the sale could be difficult and complicated, or you could easily find the finances of selling a business are not attractive to you.
As a general rule, you’ll want to be able to produce 2-3 years of tax returns to show the profitability of your business. This helps ensure you get your maximum asking price and that you cut down on the troublesome issues that could impede your sale.
How Will You Value Your Business?
You think your business is valuable because you built it, but that doesn’t mean buyers will see it the same way. As you move toward selling your company, you’ve got to have a plan for how you’ll value your business and set a price for buyers.
Sometimes, small business owners run all their expenses through the business accounts, including personal things like meals and country club dues. Unfortunately, this can make your business seem less profitable on paper and may lead to people undervaluing your company.
To get an accurate number, hire a CPA and an appraiser to help you manage your business finances, and to put a value on it when you’re ready to sell.
Is Your Business in The Upswing?
If you wait until your company is in decline to sell, you’ve waited too long. You’ll get the most money from a growing company, and you’ll be less likely to run into issues that could slow down or halt your sale.
Do You Have a Business Model?
While you’re in the process of deciding to sell a business, it’s smart to ensure your company has a viable business model. If you don’t, you need to create one before you sell. Not only will a business model help ensure good gains for whoever purchases your company, but it’s also a smart way to keep your company growing long after you sell.
Smart Tips for Selling a Business
Deciding to sell a business is a big decision, and it deserves some serious thought. Luckily, asking yourself these key questions is a good way to ensure you’re really ready to sell your company and that the people who buy it will enjoy all it has to offer.
If you’re ready to grow or sell your company, read Session 14 of MOBI’s Business Expansion Course.