Main reasons why clients sell their businesses
You should have a strategic plan in place for when it may be time to sell. Failing to plan for a business sale or tune in to the signs that it’s time to sell, could lead to disaster. This failure could result in you bungling your exit strategy.
With this article, we’ll take a look at some of the signs that may mean it’s time to sell your business. Here are the six key points to consider.
Rising Profits and Performance
One reason a business owner may choose to sell their business is that it has experienced sustained profitability. In this case, you may “flip” your business at its height and reap maximum profits from your original idea.
However, before you consider selling your profitable business, make sure to clean house. Ensure that:
- You have used a experienced valuation professional to determine the accurate value of your business
- You have a solid exit strategyin place. Make sure the company can continue to run in the hands of the new owner long after you’ve left. Ensure that marketing strategies, financial policies, administration, and trusted “place-holder” employees are in place to continue the business.
- Boost your sales months before the sale takes place.
- Clean up all your business financials by presenting clean, audited financial statements and tax returns going back at least three years.
Buyers ideally look for profitable businesses. In this case, it takes less time to adapt the business and take it forward. Many will be prepared to pay top price for the company.
For business owners wishing to sell, this is the best time to reap a lump sum. You can show consistent sales growth and earnings through financial statements such as balance sheets, profit and loss statements, and cash flow statements.
Declining Profits and Performance
Things may not always go according to plan, and you may be forced to sell your business when it is unprofitable or in decline. Although this is not the ideal situation, as most buyers would keep a wide berth away from struggling companies, it is still possible to sell a business in decline. Venture capitalists might be particularly interested in your business. You may be lucky to get back what you originally invested or even make a slight profit in the process.
So how do you sell a business that is in decline? You must make sure that:
- You have a recovery guide in place to convince the buyer that the business can still operate and become profitable in the future.
- You are okay with accepting a bargain-basement price for the company. There are a lot of buyers looking for businesses that they can buy at a discount and add their own skills and knowledge to build the business up.
Every year, many small businesses close down. Businesses are risky assets that require sufficient capital to survive, and therefore, liquidity and profitability are essential. If any of these two factors is in the negative, then it might be a good time to consider disposing of your business. It is best to let go of the business while there is still room for recovery.
“Persistence is very important. You should not give up unless you are forced to give up.” – Elon Musk, founder of PayPal, Tesla Motors, and SpaceX.
The Business Has Outgrown Your Skills
Another reason to consider selling your business is if you feel that your current skills, resources, time, and experience will not take the company to the next level. A successful business should continually get better with time. In the modern, competitive business environment, a business owner and their team should have:
- Networking skills to build a robust network for their business;
- Financial resources sufficient to keep the company afloat and even grow the business;
- Financial management skills to protect and improve the business’ assets;
- Communication and negotiation skills to land the best deals for the business;
- Project management and planning skills to plan operations and manage projects; and
- Marketing, sales, and customer service skills to generate leads and increase sales.
As a business owner, there will come a time when you will feel outmatched, or you and your team are significantly lacking in some of these skills. Should you think that you can’t do it anymore, this is a crucial indicator that you should sell your business to someone who can.
You Are No Longer Enjoying the Business
A business should be enjoyable. After all, you set one up because you had the initial interest, knowledge, and expertise in a particular sector or idea, and wished to make money from it. If after years of running your business, you suddenly realize that it doesn’t feel exciting, then you have lost passion in your business.
Loss of passion in business could eventually translate to financial losses and a loss of market share. Profitability comes from the business owner putting in hard work, pumping in resources, and generating follow-up ideas to grow the business further. A loss of passion in the company could occur due to the following factors:
- You experience overwhelming, unexpected challenges and unforeseen circumstances.
- Your energy tanks and you experience burn out.
- You doubt your ability to run and grow the business.
- Your business hits a sustained financial rough patch.
- Over time, your interests change and do not align with the company.
This state of affairs is not to say that you should give up at the first sign of difficulty. But if you feel you’ve tried it all, and still do not see an improvement in your business, then it may be time to hand over the reins to someone else. It’s best to sell your business to someone who has a passion for adopting and growing your original idea, taking your business to a higher level.
“The only way to do great work is to love what you do.” – Steve Jobs, founder of Apple Inc.
New Threats to Your Business
When the market trend towards your business is unfavourable, this is a clear sign to jump ship and sell. Some threats that could directly affect your business performance include:
- Broad economic uncertainty
- Reputation breaches
- Cyber-technology threats such as data breaches
- Financial obligations or downturns
- Compliance laws and regulations
- The emergence of a strong competitor
- Legal liability or court judgements
- Drastic reduction in sales
In today’s competitive business environment, dictated by fast-moving technological advancements, most businesses can experience the market bottoming out on them. It’s therefore essential to look out for the signs of a depression or recession and to prepare a proper exit strategy for the business sale before your business loses its value completely.
At some point, every entrepreneur will consider calling it a day and taking it easy. A majority of entrepreneurs plan to sell their business as an exit strategy to boost their financial standing for retirement.
Employed persons can quickly determine that they are “retired.” But when you own a business, it is not as simple. Determining the amount of salary to pay yourself while remaining tax compliant can be tricky, even if you work fewer hours.
You may have also achieved a comfortable level of financial security and decide that a more laid-back lifestyle is for you. If the thought of retiring is too much to bear, you may choose to hire a manager to take over the day to day operations. This can leave you to spend more time with your family and still reap the profits from your successful business.
Whatever your decision, should you feel that you wish to step back from the helm, it may be time to sell your business to someone who has the time and resources.
The Bottom Line
For many business owners, their business is a reflection of their values and one of their most valuable assets. Selling isn’t easy, as the company often represents your life’s work.
To soften the blow, or to position yourself to reap maximum benefits, you must plan for the sale and start it as early as possible so you have absolutely no time pressure.