Deciding When to Sell Your Business: 5 Key Considerations

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“Is the time right to sell my business in Atlanta…or Tokyo…or Chicago?”

It’s the query analysts and brokers hear more often than most others, and the answer is as unique as your business itself is. The market is always a factor, of course, but it’s not the only factor. If you’re planning an exit, here are five questions to ask yourself before you get too far into the planning process.

Is My Business Ready for a Sale?

Is your business really ready to be sold? How will your books, processes, staff, and earning potential look to a buyer who doesn’t have your emotional attachments? What will come out in due diligence? Are you facing any lawsuits, regulatory changes, or other areas of exposure that could harm your business or undermine its value? 

How Much is My Business Really Worth?

If you built your business yourself, its worth may be virtually infinite—to you, that is. To a buyer, your work isn’t worth anything. It’s the end product it has produced that matters. Before you sell your business, you need a valuation from a valuation expert. Don’t rely on similar businesses, your own sense of your business’s value, or other unreliable measures. Your business is unique, and only a skilled valuation expert can competently evaluate its shortcomings and strengths.

Is Now the Time for a Sale?

Business owners are often eager to sell their business when it’s in financial disarray, when the market is turning downward, or when the competition threatens to overtake their market segment. These are the worst times to sell. You’re much better off waiting until the climate is more favorable for a sale. If you can’t wait, you need to carefully consider how external and internal factors can affect value. In some cases, you may be able to do things to adjust for these effects—by, for example, overhauling your operations or working to become more competitive. 

How Will the Market Affect a Sale?

You can’t control everything that affects the value of your business. Consider how travel agencies felt when sites like Expedia enabled travelers to compare options for free, without talking to anyone, and without leaving their homes. Or how smart phones have affected home phone lines. The market matters, and you need to consider how changes in the market—including emerging competition, new technology, the regulatory climate, and cultural trends—may affect your business. Don’t discount that small start-up competitor. They might be your biggest competitor one day. Successful businesses adopt a proactive stance, competently predicting how market swings may affect their bottom line.

Is My Business Prepared to Be Run By Someone Else?

Every business owner has their own idiosyncrasies. Maybe you use an accounting method that works only for you. Perhaps your files are a mess, but you know where to find them. It doesn’t matter if you can deal with the controlled chaos you’ve created when it’s time for a sale. You need to ensure that a new owner can run your business. That means cleaning up your books, your files, and your management style. It means ensuring operations are streamlined, and that there are clear policies for dealing with the range of issues your business faces.

If an owner has to fight against bad precedent set by a previous owner, that’s time they have to waste, frustration they have to manage, and money they stand to lose. That, of course, lowers the overall value of the business.