Should I Sell My Business? Reasons to Sell or Not to Sell
3 Signs It Might Be Time To Sell Your Business.
Mar 26, 2021
To sell or not to sell?
Many business owners don’t ask, “When should I sell my company?” until a life-changing event compels them to. As with all major life decisions, planning ahead pays off.
Understandably, not everyone gets to plan early. Regardless of how far along you are, there are a few key indicators to look out for when considering a business sale.
3 Signs It Might Be Time to Sell Your Business
It can be challenging to know when to sell your business. Any business owner interested in selling their company should look for the ideal window of opportunity to make the transaction. Timing, market forces, and personal motivations may all influence the decision to sell your company. And once you’re ready to do it, you will want to maximize the sale price and get the most profitable deal possible.
Knowing when to sell a business is not always easy. But if any of the following indicators sound familiar to you, they might be valid reasons why a company should definitely consider attracting investors.
Start by looking for the following signs your business might be in a good position to sell:
1. You’re Risk Averse, But the Business Needs to Expand
No business can grow without assuming some risk. Retirement and other lifestyle changes can radically change the amount of risk you’re willing to take on.
If your business stagnates in the long-term, competition and changing market conditions will impact its valuation. You may end up selling at a far lower price than you would have if you sold earlier.
As a business owner, you have to consider the difference between what’s best for you and what’s best for the business. If your personal ability to assume risk is lower than your company’s, it may be a good time to consider selling it to someone who is willing to take the business further – and who can afford to risk their investment doing so.
2. Lifestyle Changes Demand a Diversified Portfolio
Many business owners don’t consider selling their business until a compelling event in their life creates a new set of needs. Lifestyle changes like retirement, an expanding family, or moving to a different country can result in a need for greater liquidity, succession planning, travel, and more.
If being involved in the daily operation of your business doesn’t sit well with the lifestyle you lead, both you and your business will suffer. This puts pressure on business owners to diversify their financial interests, which can mean selling at least part of the business.
It’s important to note that you don’t necessarily have to sell the entire business to a single buyer. Many people undergoing lifestyle changes simply decide to sell part of their stake in the business. You may wish to retain a minority share while passing leadership responsibility on to someone else who can carry the torch further.
This option can provide you with enough capital to invest in a more diversified portfolio of assets. If you sell 60% of your business and keep 40%, you can choose to remain involved in its day-to-day activities. You can then reinvest the proceeds in a wider selection of assets and secure your financial future.
3. The Timing Is Right
Admittedly, “timing” is a vague term. If you’re asking, “when should I sell my company?” you will get the best results by basing your answer on solid facts. Your company data can tell you when you can get the best possible price when selling your business. If you plan on selling within the next five years or so, you can start looking out for the optimal conditions using these four predictors:
- 3 Years of Steadily Growing Financials. Most professional business brokers will calculate the value of your business using your last three tax returns, balance sheets, and profit & loss statements. Your most recent data is weighted heavier than previous years, so a gradual incline puts your business in the best possible position.
- Experienced Staff and Reliable Management. Your staff will be a major selling point during the initial negotiations. If you have a strong team that operates independently of your daily input, it’s a good sign you may be able to sell the business at a profitable price. If you’ve just hired or fired a significant number of staff members, potential buyers will not be enthusiastic.
- Diversified Client Base. Very few people will want to buy a company that generates more than one-third of its sales from a single client. Buyers are worried these clients won’t stay with the company after the acquisition, taking one-third of its revenue with them. A company with a highly diverse set of clients is far more likely to remain profitable in the long term.
- No Major Investments Incoming. If your company has to make any capital expenditures in the near future, you will have a far easier time selling the company after making them. If there are no major expenditures on the horizon, it’s a good sign that your company’s valuation may be at a peak.
Business owners who plan ahead will be able to make their exit in a profitable way. The longer you’ve planned for your eventual business sale, the better positioned you will be when the question “should I sell my business?” becomes your primary concern.
Rely on Expert Advice from a Trusted Partner
For most people, selling a business is a once-in-a-lifetime event. There are clear steps you can take to prepare yourself for it, but there is no way to earn the experience you need beforehand.
That’s why it pays to rely on the guidance of a team that has the experience you need. You don’t have to rush into the decision to sell your business without support. Consult a professional advisor who can help you determine when to sell your company in a profitable way.