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How to sell your business: #1. When is the right time to sell?

Deciding when to sell your business is one of the hardest decisions you’ll make as an entrepreneur. Hopefully this guide will crystallise your thought process.

Thoughts of selling your business can be motivated by a range of factors, some of which may be out of your control.

They can include ill health, divorce, a need to liquidate assets or realise a new strategic path, boredom or even becoming overwhelmed.

Regardless of your motivation, the timing of your sale can really influence the price.

Sale price typically reflects past performance and profits, so taking this into account may help you reach a decision on when to put your business on the market.

Following declining profits and performance

This is the most challenging time for a business owner. Perhaps seeing a slump in performance has drained your motivation and energy and you simply don’t have any fuel left in the tank to build the business up again.

Sadly, this is all too common with burnt-out business owners. The trouble is, a decline in profits and performance will also mean a lower sales price.

If your business is at this stage, you need to ask yourself if you can keep it running and increase profits, ensuring a better sale price in the future.

Perhaps a new competitive threat means you will be unlikely to recover. If this is the case, you need to objectively assess the likelihood of restoring the business to its previous heights – and valuation – versus the risk of things deteriorating further still. Do you stick or twist?

Ask yourself: Can I keep it running and the profits growing, to get a better valuation price?

Amid sustained performance levels with slight profit variation

With this scenario, a business sale price can be based on the previous three to five years’ average profits, as a potential buyer can see that the business has performed consistently over a sustained period of time.

The trick here is not to be lulled into false security. Once that ‘For sale’ sign is up, it’s important to maintain momentum.

The selling process may take a while. You don’t want to lose your sale price advantage because you think the finish line is in sight and you take your foot off the gas prior to completion.

Rising performance and climbing profits

A growth business will always sell quicker and at a better price because astute investors are ready to take advantage of future market success.

However, few business owners want to sell when business is booming. They find themselves enjoying the fruit of their hard labour and are keen for it to continue.

Yet as buyers will pay more for rising profits, a period of growth is always a time to check in with yourself on why you love owning and running a business.

Would you be as motivated when faced with falling profits?

Profit and performance impact on how your business is valued so taking this into account vital.

In addition to profit and performance, there may be other reasons why you’re considering selling up.

You’re simply not enjoying the business anymore

As a business grows, entrepreneurial challenges that were once exciting motivators are often replaced by more administrative or human resource-related challenges.

If the tedium of admin isn’t for you, perhaps it’s time to prepare for your exit.

Your business has outgrown your skills

This is a tough 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 the next level?

Threats on the horizon

Perhaps you can see a threat looming that will have an impact on profits and performance.

If you’re a boutique hotel owner, perhaps AirBnB is starting to concern you. Think of Blockbuster videos, unable to be nimble enough to fight off the challenge of Netflix and Stan.

A lucrative opportunity

A business exit strategy can also be motivated by opportunity.

Perhaps you’re a fast, innovative, social media site that has Facebook knocking. Honesty and humility are important here: you may want to be a multi-million-dollar acquisition, but do you have the skills to get to that level? A million-dollar offer may be worth considering.

Regardless of your reason for selling, one thing is clear: it’s never too soon to create an exit strategy and start preparing your business for sale. Having a plan in place means you’ll be ready to take advantage of any situation you see on the horizon.

But will you seek professional help with preparing your exit strategy and/or navigating the sales process?


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