How Does an Entrepreneur Know When It’s Time to Sell the Business?
When is the right time to sell? Everyone knows the grind involved in starting or running your own business. But what about after the long road? How does an entrepreneur know when to get off? Is there a wrong time?
Selling a business can be a life-changing decision. A founder-owned company is usually the largest or among the largest of that person’s assets. It’s also usually an important part of the owner’s, and maybe even the family’s, identity. Transitioning out of a business is therefore a massive financial and emotional time in a founder’s life.
Unfortunately, there are no exact signs that tell a business owner when the time is right. However, there are some guidelines that one can follow to make sure it’s not too early or too late to maximize both your happiness and financial returns.
When to Sell
When we meet with entrepreneurs, it is very rare that they just woke up one day and decided that today was the day to sell the company. This decision has usually been discussed with family or with advisors for months, if not years. There are several things that can cause the conversation to begin. There are happy reasons like, “I want to spend more time with my grandchildren” or “I want to play more golf.” Perhaps the most common things we hear are “I’m tired” or “this isn’t fun for me anymore.”
These are all very valid and worth discussing, as an owner deserves to have time to enjoy the fruits of their labor.
Critical Prep Work Before You Sell
Once the decision has been made, there are a couple of things you may want to put in place to make sure your transaction is successful.
- Make sure you have a competent management team to replace you
Most buyers want to acquire a business that can run efficiently once the owner steps away. If the owner is wearing too many hats or holding too many relationships, and then wants to leave, he or she may not get the value for the business that they could receive if they spent the time bolstering their management team. - Identify Growth Opportunities
Obviously, it’s a bad time to sell if your business is in active decline. It is important to find areas where your business can continue to grow and develop. Even if you have no intention of implementing those plans, it’s a good idea to explain to a buyer that blue sky exists, as no one wants to buy a business that is at the end of its life. - Run a formal sale process
This might seem like kismet when it happens – you are ready to sell and someone emails you looking for a business just like yours. If an offer or a buyer is coming out of the blue, the best course of action is to take their contact information and include them in a sale process. A full-blown process with multiple buyers is the best way to make sure you get top dollar for your company. If you start to go down the path with just one buyer, you lose leverage and the power of competition that becomes available in a formal sale process.
Preparing Yourself Emotionally for a Sale
If you do decide that now is the time to sell your business, it’s also important to walk through some of the emotional questions that come up.
It’s very tempting to look at the sale of a business as a purely financial decision. Owners get bogged down in valuation multiples and trying to time the market, but something much more important is addressing an owner’s feelings about legacy, job fatigue, fears of the future, and what freedom from running a business will feel like. Valuation matters, but peace of mind is the real closing price. The smartest sellers plan for both.
Understanding Value and Potential Buyers
Most sellers begin to think about value, “what is the business worth?” and potential buyers, “who will want to buy this business?” Both of these questions are best answered once you meet with an M&A advisor or investment banker. The truth is that many owners do not know what their business is worth when a good sale process is ran. They are also not great judges of who the potential buyers will be. An investment banker or M&A advisor can make sure that you are valuing the business based on current market conditions and exploring all types of potential buyers.