Every entrepreneur has different reasons for selling a business, but there are better times and conditions than others in which to do so.
For instance, selling simply because you’re exhausted or can’t stand managing day-to-day operations anymore can drastically reduce the value of your company. But bailing out under other circumstances may prove profitable.
Here are five signs that it may be a good time to sell.
1. You can’t fund the company’s growth anymore. Some businesses grow faster than others, and yours may expand so quickly that you can no longer finance its growth. If you are unable to secure additional debt or equity financing, it may be time to sell your business to someone who can. Ensure that your business is professionally valued and that the valuation takes into account that rapid growth.
2. The business runs effectively when you’re not around. Many small-business owners develop their company to be completely dependent upon them. They are the face of the company to customers, as well as the CFO, marketing director, and receptionist. This type of business is difficult to sell because there’s no guarantee it can operate without its founder. On the other hand, if you build systems into your business that others can follow, and you can take a few days off without the whole works grinding to a halt, you have a fully operational business that will be easier to sell.
3. You have a more lucrative opportunity. New business opportunities can pop up at anytime, and you may suddenly go from forecasting the next 20 years for your existing business to wanting to buy a new one. If the profit projections are higher for the new company, you should consider selling your business and taking on the new one. Before making the leap, however, take some time to consider ways to integrate the two businesses and take advantage of any synergies. You could end up making them both more profitable.
4. Upcoming life changes will affect your business. If you are expecting substantial personal upheaval in the near future, it may be a good time to sell. For example, if you are having a baby, starting chemotherapy, or going through a complicated divorce, having the money available from the sale of your business may be helpful, and you will avoid the sometimes-inevitable disruptions to the operations. However, if you’ve built your business to operate without you, this may not be a concern — and you may be better off keeping the steady income that your business brings in.
5. You get an offer well above the company’s projected valuation. Entrepreneurs buy companies for varied reasons. You may someday get an out-of-the-blue offer for your company that’s far beyond what you think the business is worth. There are two possible explanations for that: Either you are underestimating the real value of your company, or another entrepreneur can unlock future value that you cannot. For example, if your company manufactures sports equipment, the owner of a sporting goods chain may want to purchase your company in order to save money on inventory purchases. Your company may be worth more to this buyer than to other potential buyers. To ensure that you aren’t undervaluing your business, have it professionally appraised before signing on the dotted line.