Thoughts of selling your business are often motivated by a variety of things, some of which can be out of your control.
Some of them include health problems, divorce, a necessity to liquidate assets or realize a brand new strategic path, boredom or maybe becoming overwhelmed.
Regardless of your motivation, the price you can ask for your business can be greatly influenced by the timing of your sale.
Sale price typically reflects past performance and profits, so keeping that in mind may help you make a better choice on when to put your business on the market.
In the remainder of this article we will look at common scenarios that usually precede deciding to sell a business:
Following declining profits and performance
This is the foremost challenging time for a business owner. Perhaps seeing a slump in performance has drained your motivation and energy and you merely don’t have any fuel left in the tank to revitalize the business.
Sadly, this is often very common with burnt-out business owners. The problem is, a decline in profits and performance also will mean a lower sales price.
If your business is at this stage, you might want to start asking yourself if it’s feasible to keep investing time and money in hopes that you’ll be able to turn the tide, ensuring a far better sale price in the future.
Perhaps a brand new competitive threat means you’ll be unlikely to recover. If that is the case, you might need to cut your, and your businesses, losses and start thinking about the next project. This is certainly not easy, however, if the likelihood of restoring the business to its previous heights – and valuation – is unlikely then it would be wise to act now before more value is lost.
Ask yourself: Am I able to keep my business running and whether this slump? Or is it unlikely and continuing operations will only lead to greater loss?
Performance levels with slight profit variation
With this scenario, a business sale price is often based, among other things, on the previous 3 – 5 years’ average profits, so a possible buyer can see if the business has performed consistently over a sustained period of time.
The trick here isn’t to be lulled into false security. Once that ‘For sale’ sign is up, it’s important to take care of momentum.
The selling process may take some time. You don’t want to lose your sale price advantage because you think that the finish line is in sight and you’re taking your foot off the gas before completion.
Rising performance and climbing profits
A successful business will always be sold quicker and at a far better price because possible investors are able to benefit from future market success.
However, only a few business owners like to sell their business when it is booming. They find themselves enjoying the fruit of their hard work and want to continue.
Yet as buyers can pay more for rising profits, a period of growth is usually a time to check in with yourself on why you’re keen on owning and running a business. The question is if you would be as motivated when faced with falling profits.
Profit and performance have an impact on how your business is valued so taking this into consideration is vital.
In addition to profit and performance, there could also be other reasons why you’re considering selling.
You’re simply not enjoying the business anymore
As a business grows, entrepreneurial challenges that were exciting motivators at the beginning are soon replaced by more robust and standardized processes. As a result, you might fall out of love with the business and start turning your attention to other adventures.
If the tedium of administration isn’t for you, perhaps it’s time to plan for your exit.
Your business has outgrown your skills
This is a tricky one to face, but business ownership and leadership also requires humility. Is it time to sell your business to someone who can take it to another level? If the business is big enough, you could transition into a more overseeing role on the board of directors. What should be of most importance here is the long term health of the business and the financial security of those who work there.
Threats on the horizon
Perhaps you’ll see a threat looming that will have a detrimental effect on profits and performance.
If you’re a boutique hotel owner, perhaps AirBnB is beginning to concern you. Think about Blockbuster videos, unable to be nimble enough to repel the challenge of Netflix and Stan.
When new threats become critical to the viability of your business it might be a good time to start thinking about selling, or perhaps future proofing your business with the latest technology.
A lucrative opportunity
A business exit strategy can be motivated by opportunity too.
Perhaps you’re a quick, innovative, social media site that has Facebook knocking. Honesty and humility are essential here. You’ll want to be a billion-dollar company, but do you have the ability to get to that level? A million-dollar offer could also be worth considering.
Regardless of your reason for selling your business, it’s never too early to make an exit strategy and begin preparing your business for sale. Having an idea in place means you’ll be able to benefit from any situation you see on the horizon.
But will you sell your business yourself or employ a business broker to help you with preparing your exit strategy and/or navigating the sales process? Learn more by reading our article here.
The time when you decide to sell your business plays a major role in the sale price. Why are you selling your business is one of the primary questions a possible buyer will ask.
Owners commonly sell their businesses for any of the subsequent reasons:
• Partnership disputes
• Illness or death
• Becoming overworked
Some owners consider selling the business when it’s not profitable, but this will make it harder to draw in buyers.
There are many attributes which will make your business appear more attractive, including:
• Increasing profits
• Consistent income figures
• A strong customer base
• A major contract that spans several years