Is it Time to Sell Your Business?

I’ve sold three businesses since beginning my entrepreneurial career. Two of them were bringing in over 5 million in revenue and had tens of thousands of customers when I exited.

You might wonder why I would have gotten out of something that was going so well. But having an exit plan is an important part of any business strategy. You simply need to understand when it is time to activate it.

Fortunately, deciding when to sell your business isn’t really that mysterious. There are four real factors that you need to watch out for.

The first factor is personal. Perhaps another opportunity has caught your eye, or you have a different idea. This often happens to serial entrepreneurs. Some people are also better at starting companies than they are at running them, so it makes sense to cash out, take the money and go on to the next big thing.

However, it’s just as valid to sell because you’re facing burnout. In fact, if you’re facing burnout it’s absolutely time to sell, because burnout on your part can sink your company to the point where it will be harder and less profitable to sell it later on. Be honest with yourself. If you’re ready to enjoy some hard-earned downtime and you just want to relax and live off of the spoils of your sweat then start the process. For me burnout was one of the key factors for exiting my companies. With no real mentors or advisors the stress and burnout got to me.  Thousands of customers, employees relying on me to feed their families, the constant stress and pressure just built up and I lost what I was passionate about.  All that being said as we grow as business people in experience and age, I believe we learn to handle stress better, push through burnout better and overall just endure. I guess there are advantages to old age and wisdom, I guess it's not all achy muscles and dirty diapers.

Declining health is similar to burnout in this regard. You may still be passionate about the business but if much of your attention is being diverted into doctor visits, surgeries, and tests then you won’t be pouring as much energy into the success of your business and it could decline even as your health declines.

Personal factors can be especially pressing if you don’t have anyone who is interested in taking over the business. Some owners are lucky enough to have a talented, passionate employee who might be willing and able to do the deal. Some actually have a family member who is skilled enough and interested enough to take over the family affair. Many business owners are simply not in that position, however, and that means they aren’t going to be leaving a long-term legacy. They’re just going to sell, and they’re going to enjoy the benefits of doing so.

The second factor is a bit more random. Sometimes someone will come along and make an offer. People don’t always wait around to see if you’ve decided to sell. They might just meet with you to gauge your interest. If the offer is attractive then it’s absolutely worth considering. After all, if someone wants to buy your business before you ever considered selling it then you might just get a better price simply because you are in a better negotiating position. After all, you don’t have to sell right now.

The third factor is the business valuation. Now, business valuation is more art than science. It’s not as easy as calculating your annual revenue. So don’t assume that you know your business’ value.

If you’re growing and you’re thinking about selling retain the services of a certified valuation agent. Get a ballpark figure. And know that you may or may not sell for that figure. Businesses are just like cars and houses...they’re worth what someone is willing to pay for them. Still, there’s nothing wrong with selling while you’re ahead if that is what you want to do.

The next factor is a lot less cheerful. Declining market share or poor cash flow are both reasons why it may be time to get out, especially if you’re all out of bright ideas for improving the situation. Of course, you won’t get top dollar if this is your reason for selling, but you’ll still walk away with some money, and the new owner might be able to pull off what you can’t. Either way, you don’t want to let a bad situation grow worse. Do that, and you won’t be able to sell much more than the FFE (furniture, fixtures, and equipment) value of the business, and you’ll take a huge hit after all of your years of hard work and sacrifice.

It will probably be time to sell a lot sooner than you think it will be. John Warrilow, founder of The Saleability Score, points out that the process of the sale can take up to 12 months (sometimes it takes as long as 18 months) and most sales deals demand that you continue to work for the business as an employee for three to five years more after that. So if you’re going to err, err on starting the process sooner rather than later...it could be six years before you’re truly ready to walk away.