Should I Sell My Business? 14 Signs That Say Yes
As an entrepreneur, you've poured your heart and soul into building your business. But there comes a time when every business owner must ask themselves - should I sell my business or keep it? The decision is challenging, and it involves weighing various factors.
In this article, we'll explore 14 signs indicating it's time to consider selling your business and answer a few other commonly asked questions.
Disclaimer: The information contained in this blog is provided for informational purposes only and should not be considered as financial, tax, legal, or accounting advice.
We are not certified tax professionals, and tax complexities can vary greatly by individual circumstance and jurisdiction. Always consult a qualified tax advisor or legal professional for personalized advice to ensure compliance with your local laws and regulations.
TL;DR - Should I Sell My Business or Keep It?
Consider selling your business if most of the following signs resonate with you.
Need for Resources or Expertise
Attractive Acquisition Offers
Business Valuation Peaks
Capital for New Ventures
Partnership Disputes
Succession Planning
Industry Changes
Personal Reasons
Financial Distress
Lifestyle Change
Risk Reduction
Market Timing
Retirement
Burnout
Is it the right time to sell your business? You can make that call as the business owner. But remember that the decision isn't binary. You need to consider several factors before you decide to pull the plug.
If you’re unsure what’s best for your company, Exitwise is here to help. We’ll introduce you to top M&A experts in your industry who will advise you during the M&A process until you sign the final sale deed. Reach out to us today to discuss your unique situation.
When is the Ideal Time to Sell My Business?
The ideal time to sell your business hinges on several factors:
The business's financial performance
Market conditions
Industry trends
Your personal goals
A peak in profitability, a stable or growing revenue stream, and strong market demand for businesses like yours could be good opportunities to finalize the sale decision.
For example, suppose you own a tech startup with strong yearly revenue growth and profitability, and the industry trends show increasing investments in tech. In such cases, it might be the perfect time to consider selling and maximizing your returns.
You must decide and prepare for the sale well in advance—ideally a year or two in advance. Focus on improving financial records, business structure, and customer base.
The Risks of Selling Too Soon (or Too Late)
The timing of your business exit can hugely impact your financial outcomes.
Let’s check out what the risks are in each case:
Risks of Exiting Too Soon
When you sell your business too early, here are the issues you might encounter:
Emotional Impact: If you sell your venture early when you’re not ready to let go, you may not be completely satisfied with the sale. You may also always wonder if you could have created something massive.
Not Maximizing Financial Returns: When you sell a business too soon, you might risk leaving significant returns on the table.
Missing Out on Growth Opportunities: Your business might continue to do well. When you sell too soon, you may miss out on potential high-growth phases, resulting in selling for a lower valuation.
Risks of Staying Too Long
When you cling to your business, these are some of the risks you’re likely to face:
Missed Opportunities: When you hold a business for too long, you may diminish the returns due to unpredictable market conditions, including recessions and interest rate hikes.
Decline in Business Performance: Your business may become less attractive to buyers if you start losing key clients and stagnate in revenue.
Fatigue Might Set In: As a business owner, you may become exhausted from running your company for too long, making it challenging to sell and maximize the outcome.
14 Reasons to Consider Selling Your Business
Here are some reasons that may push you to sell your business.
1. Need for Resources or Expertise
Selling lets you tap into new resources or partner with experts who can elevate your venture. These partners can open new doors, including access to cutting-edge technology, industry connections, or gaining specialized knowledge.
2. Attractive Acquisition Offers
Sometimes, selling your business may not be your immediate goal. However, if you receive enticing offers, selling might align with your long-term goals.
For example, a larger company may see the value in your business and want to integrate it into its operations. Such an offer is hard to pass, especially if the terms and conditions meet your demands. That's where you may want to start learning the intricacies of selling your company or seek the help of seasoned M&A experts.
3. Business Valuation Peaks
Your business valuation is based on various factors, like your current and future financial projections, market trends, and more. Use our innovative business valuation calculator to get an idea of your target value.
Once the valuation reaches its peak, you can capitalize on it by strategically selling at the right time.
4. Capital for New Ventures
Selling your business can provide the necessary funds for your next entrepreneurial endeavor. Whether you are eyeing a new startup or expanding an existing venture, liquidating your current company is a great idea to gather capital and add a star to your entrepreneurship experience.
5. Partnership Disputes
Businesses running on partnerships sometimes face disagreements, which can hinder growth. In such cases, selling your business could be a good escape route. However, unless it's incredibly urgent, you can wait some time to improve your business's valuation and then sell it to an interested party.
6. Succession Planning
In some cases, a business owner may not have any successors in their family to run their business. That’s why succession ownership planning is essential to ensure that you hand over your business to someone with a similar vision for maintaining consistency in quality and customer trust.
Whenever you come across such a person or organization, selling your business can help keep your company's legacy alive for a long time.
7. Industry Changes
Rapid shifts in your industry may prompt reevaluation and a decision to sell. If your business model becomes outdated or faces disruptive competition, selling your business allows you to minimize losses and entertain new ventures to adapt to the changing market.
8. Personal Reasons
Life events or family issues may also lead to selling a business. These include unexpected health problems, the need to care for family members, or a desire to retire and enjoy a quieter life.
Personal goals or aspirations sometimes change, prompting business owners to pivot towards new adventures or passions that align better with their evolving interests.
9. Financial Distress
If your business is drowning in debt or facing challenges, selling becomes an inevitable but effective survival strategy.
Selling your business can alleviate financial strain and provide relief in times of economic distress.
10. Lifestyle Change
As priorities and life choices evolve, selling your business can allow you to fulfill your needs. You may want more time for travel, hobbies, or spending time with your family. For such life-changing goals, selling frees you from the daily grind.
11. Risk Reduction
Sometimes, minimizing risk means letting go of your business. If external or internal factors threaten the stability of your business, selling becomes a smart move to save your investment and remain viable for future endeavors.
12. Market Timing
Factors like inflation, recession, geo-political situations, etc., greatly affect the business market. Favorable market conditions yield better returns when selling a business.
You should wait for the right moment to get the best valuation for a positive financial outcome.
13. Retirement
After dedicating valuable years of your life to your business venture, you may feel ready to retire and enjoy the fruits of your labor. Selling your business can pull off the weight of professional responsibilities from your shoulders and also fund your retirement.
14. Burnout
Exhaustion from running your business signals it's time to explore other paths. If managing your company has taken a toll on your well-being, selling allows you to recharge and explore new adventures.
How to Assess Business Readiness for Sale
Often, the goal is not just to sell a business but to achieve the optimal outcome for you and your business.
So, before you rush into a sale, here is a selling a business checklist to consider:
1. Audit Financial Health
You should audit at least two to five years of financial records to verify the accuracy of the reports before presenting them to potential buyers.
Here you should:
Ensure the reports align with industry metrics and disclosures to build confidence in your buyers.
Organize your historical financial data to allow easy accessibility during the due diligence process.
Report non-recurring expenses to provide buyers with a clear view of your company's financial health.
2. Check Operational Efficiency
Evaluate if your business operations are streamlined to demonstrate operational consistency.
You should:
Determine if your operations can support the scaling of your business with additional investment.
Review the inventory management and supply chain to ensure they are efficient.
3. Analyze Market Position
You should assess your business position in the industry and determine its distinguishing strengths and competitive advantage. Highlight the:
Unique selling points that set it apart.
Attributes that make your company an attractive acquisition.
4. Assess Management and Workforce Readiness
Potential buyers look for stable leadership and operations. They may also check if the management can encourage the transition and the continuity of plans after the sale.
To ensure readiness, here’s what you can do:
Identify key team members who help with operations or client relationships and incentivize them to stay after the transition.
Identify any gaps in staffing and expertise that may hinder a smooth transition or sale process.
Outline ways to retain the team morale and reassure potential buyers of a strong operational performance.
5. Check Customer Relationships
When preparing to sell your business, assess the customer and supplier relationships to ensure stable revenue.
Review:
Secure and long-term contracts to reduce the risk of depending on a single client.
Key supplier agreements to showcase a stable revenue foundation.
6. Evaluate Technology and Intellectual Property
You should have all the documentation for intellectual property, like patents, trademarks, and copyrights, ready for transfer.
Ensure they are properly documented and legally protected.
Review their documentation and specialized maintenance to minimize disruptions during the transition.
Additionally, check technical and financial systems to identify those that are outdated and take measures to ensure they are compatible with the new owners.
Who Can Help Me Sell My Business?
Expert guidance regarding mergers and acquisitions can prove invaluable if you're contemplating selling your business.
We at Exitwise, a trusted partner in business transitions, can assist you with the sale of your business. We help you find seasoned professionals to guide you with your deal for the best business valuation. Whether you need experts to understand market dynamics, valuation strategies, or negotiation tactics, we have you covered.
See our customer success stories to learn more about why you should choose Exitwise while selling your business.
How Much Can I Sell My Business For?
Determining the right price for your business is crucial, and our valuation calculator can help you get an overall estimate of your business. You can also opt for a detailed expert valuation. In this report, you'll get an estimate of your business's potential value after inputting relevant data—such as financials, industry trends, and growth projections.
Always remember - an accurate valuation is essential to get the best value for your company.
Alternatives to Selling Your Business
Before deciding to sell your business, it's essential to explore all other possibilities and make a decision that aligns with your long-term vision.
Consider the following options:
Going Public: Consider an initial public offering (IPO), especially if you want to generate capital. However, you’ll be accountable to external investors, and you should adhere to strict Securities and Exchange Commission regulations.
Succession: You can consider having a strong succession strategy to hand down your business to the next generation.
Senior Advisory: An advisory role is a great way to exit your business. In this role, you can relinquish most control over your business but still have some sort of involvement in the company.
Frequently Asked Questions (FAQs)
Here are your answers to some commonly asked questions about selling your business.
Should I Sell My Business When It's Doing Great?
Timing is crucial in selling your business and getting the most value out of it. If you've achieved consistent profits and have a solid customer base, selling during this peak could yield substantial returns. However, while it's tempting to sell when things are going exceptionally well, you should also consider factors like your long-term goals and scope for better valuation in the future, among others.
Can You Sell a Business With a Pending Lawsuit?
Yes, you can. However, transparency is crucial in such a situation. Disclose your business's legal situation to potential buyers. Some buyers may be willing to proceed, while others may shy away. You should consult legal M&A experts to navigate this complex scenario.
Can You Sell a Business That is Not Profitable?
Selling an unprofitable business is challenging but not impossible. To attract buyers, focus on your business's other valuable offerings, such as a solid customer base, long-term contracts, growth potential, etc. Be transparent about your financial challenges and emphasize the turnaround potential to convince prospects about the possibilities of success.
How Long Does it Take to Sell a Business?
The sale process involves negotiations, discussions, and due diligence, which can take anywhere from eight weeks to over a year, depending upon the complexity. However, the timeline for selling a business varies depending on various factors. It’s best to start preparing early—ideally a year or two ahead—to improve financial records, business structure, and customer base.
If I Sell My Business, How Much Tax Will I Pay?
Tax implications depend on your business structure, location, and profit. You should consult a tax professional to understand capital gains tax, income tax, and other applicable taxes. If you plan well, you can minimize your tax impact after selling the business.
How Do I Weigh Personal Burnout vs. Business Potential?
Here are ways to weigh your personal burnout and business potential:
Identify the source of your exhaustion
Assess whether your business has high potential
Review if your burnout is chronic so you can prioritize your health and time.
Should I Use a Broker to Sell My Business?
The short answer: it depends.
You should use a broker when you want to maximize your sale, or don’t have the time or skills to qualify a buyer. A broker might also be ideal if your business structure is complex.
However, you might not need a broker if your business is small, a buyer has approached you, or you know the exact process of exiting your business.
Conclusion - When Should I Sell My Business?
The decision to sell depends upon various factors, such as personal life, future plans, risk mitigation, retirement, fresh starts, etc. As an entrepreneur, you hold the compass to your business's future and must consider the reasons, timing, valuation, and circumstances.
If you do decide to sell your business, consider teaming up with us at Exitwise. We will help you create your dream team of M&A experts who fetch you the exit you deserve.
