Selling Your Business – Factors to Consider
The decision to sell your company is a complex one, requiring careful consideration. After dedicating years or even decades to building your business and making numerous sacrifices, it becomes an emotional determination that should not be taken lightly.
To make an informed choice, there are four essential factors to ponder:
- Your Goals: Personal, financial, and business-related objectives play a significant role in your decision-making process.
- Internal Factors: Emotions play a crucial role in this decision, and understanding your feelings is essential.
- External Factors: Consider timing and competition in the market to assess the external landscape.
- Business Value and Exit Options: Understanding the value of your business and exploring different exit strategies is vital.
While we can provide guidance on external factors and business value, the evaluation of your goals and internal factors lies in your hands. Deciding to sell your business is not a mere checklist task but a deliberate process that requires a comprehensive evaluation, weighing facts and emotions with logic and intuition.
The four factors mentioned above serve as starting points for deeper exploration when contemplating the sale of your business. Each individual’s situation is unique, and additional factors may need consideration beyond what is covered here. Begin with these ideas, and from there, chart your own path.
As Lao Tzu once said, “Questions confine answers. When there are no longer questions, answers are no longer bound by them.”
#1: Aligning with Your Long-Term Goals
Initiate the process by clearly defining your long-term goals. This step allows you to place all other factors within the context of your aspirations. The decision to sell a business involves numerous considerations, which can sometimes be overwhelming when considered all at once.
Honesty is crucial when evaluating your long-term goals. Rushing into a decision may lead to misalignment with your broader objectives. Selling prematurely could result in regrets if the sale does not contribute to accomplishing your desired outcomes.
Ask yourself the following questions to align your long-term goals with the sale of your business:
1. Would selling my business help me achieve my long-term goals?
2. What exactly are my long-term goals?
3. How does selling my business contribute to achieving those goals?
4. Is my objective to become financially independent through the sale of my business?
If financial independence is the goal, consider getting your business appraised and devising a plan to increase its value. Monitor your progress to ensure your objectives are met. Additionally, prepare a personal financial and tax plan to align with your exit strategy.
5. Is my goal to sell my business to pursue another business or switch industries?
If so, weigh the lost opportunity cost and the expenses associated with remaining in the current business. Consider what you might be missing out on by not pursuing your next venture or opportunity in a different industry.
Remember, ideas may be boundless, but time is finite. Consequently, it’s essential to focus on a limited number of pursuits in your lifetime.
Always remember that the decision to sell your business should be anchored in a comprehensive review of your long-term goals. A lack of clarity in your objectives may lead to a shaky foundation for the sale process, potentially diminishing the value you derive from the sale.
In the words of Saint Francis of Assisi, “You are that which you are seeking.”
Do I Need to Sell My Business to Achieve My Financial Goals?
To determine the answer, consider the following points:
1. Assess Your Financial Goals: Clearly define your financial objectives and how they align with your long-term plans.
2. Prioritize Your Goals: Identify the relative importance of your financial goals compared to your other aspirations.
3. Evaluate the Importance of Selling: Determine whether selling your business is essential to accomplishing your financial objectives.
4. Plan for the Proceeds: If selling is necessary, consider how you will utilize the money after the sale.
5. Diversify Risk: If one of your goals is to mitigate risk, assess if taking money off the table through the sale can help achieve that.
If selling your business is crucial to fulfilling your financial goals, seek advice from a financial planner to ensure your objectives are met, both short and long-term. Additionally, consult with a CPA to understand the tax implications of the sale.
For many business owners, selling their business is instrumental in achieving their personal and financial long-term goals. To create a clear roadmap, it is vital to distinguish between your financial and non-financial objectives.
Remember, the numbers represent the means to an end, not the end itself. Start by clarifying your long-term goals, and if possible, assign tangible figures to each objective.
In the wise words of David Baughier, “Once you have enough money, it’s not about the money.” Embrace the deeper meaning behind your financial goals, and let them guide your path forward.
Exploring Additional Goals Through Business Sale
When contemplating the sale of your business, it is vital to assess the potential lost opportunity cost. Pursuing multiple objectives simultaneously may dilute focus and reduce overall success. Thus, the decision to sell should factor in the costs associated with holding onto a business without the passion it once had, especially if its value is declining.
Consider the following scenario: If staying in the business costs you $500,000 annually in missed opportunities, holding on for three more years would amount to a total cost of $1,500,000. In contrast, selling the business now for $4,000,000 (experiencing a $1,000,000 short-term loss) may outweigh the continued yearly loss of $500,000 and open doors to other potential ventures.
While the decision may not always be purely numerical, exploring various perspectives can be beneficial in evaluating the sale of your business.
Furthermore, industries vary significantly, and making the transition from one to another demands careful consideration. As Warren Buffett wisely stated, if you find yourself in a chronically leaking boat, focusing on changing vessels might prove more productive than patching leaks.
Entrepreneurs often wonder if other industries offer more potential than their current one. In such cases, consulting with experienced entrepreneurs in diverse industries or seeking advice from professionals with knowledge in multiple sectors, such as an M&A advisor, can provide valuable insights that might be otherwise overlooked.
For non-financial goals, the decision becomes especially challenging, requiring careful contemplation and weighing of options. Remember, life is short, and owning a business may prevent you from pursuing other experiences. Assess the value of those experiences and what they truly mean to you.
Ultimately, intelligent decisions stem from considering opportunity costs, as aptly mentioned by Charlie Munger. By thoroughly examining your situation, you can make an informed choice that aligns with your long-term objectives and aspirations.
#2: Internal Factors
Considerations for Selling Your Business and Finding Happiness
- Assess Your Happiness: Be honest with yourself, evaluate your current happiness level, and ponder if your business is contributing to any discontent.
- Potential Solutions: Reflect on whether selling your business could lead to greater happiness, but also be cautious about replacing one set of challenges with another.
- Root Causes: Identify the root of your business problems. Determine if they stem from a lack of management skills or external factors beyond your control, such as industry competition.
- Industry Impact: Some industries are known for not fostering happiness due to challenging customers, long hours, demanding clients, or low margins. If your industry affects your well-being, consider exploring alternatives.
- The Happiness Equation: Consider whether you would keep your business if it made you happier. Contemplate restructuring your business to focus on activities you enjoy and leverage your strengths.
- Passion and Change: If you have lost passion for your industry and have a strong gut feeling that change is needed, develop a clear plan for exiting your business.
Remember the words of Henry David Thoreau: “The price of anything is the amount of life you exchange for it.” Assess your priorities and the impact of your decisions on your overall well-being.
Evaluating the Impact of Selling Your Business on Burnout and Boredom
– Assessing Burnout: Reflect on your current state and determine if burnout is affecting you. Consider if you have taken breaks or vacations recently to de-stress and recharge.
– Normalizing Burnout: Understand that burnout is a common occurrence in all fields. Like professional athletes and CEOs, entrepreneurs should also prioritize regular relaxation and time off.
– Identifying Solutions: If burnout is present, explore various solutions before deciding to sell your business. Upgrading management skills or addressing employee issues can be effective measures.
– Relieving Burnout: Utilize stress management techniques and consider restructuring your business to focus on your strengths and minimize stressful activities.
– Rekindling Passion: Make earnest attempts to reignite your passion for the industry and address boredom before contemplating a business sale.
– Embracing Change: If your efforts to relieve burnout and boredom are unsuccessful, and you still lack passion for your business, consider a well-thought-out change as a potential solution.
In the words of Charles Baudelaire, “Everything considered, work is less boring than amusing oneself.” Embrace the process of finding what truly resonates with you and brings fulfillment to your professional life.
After Selling Your Business: Purposeful Time Management
As you consider selling your business, the true question to ponder is, “How will I spend my time after the sale?” Shifting the focus from money to time is essential, as your post-business life holds the key to fulfillment and meaning.
For entrepreneurs, confronting life’s deeper questions can be challenging, given the busyness of running a business. However, aligning your time with your values is paramount. Having a clear and documented set of values will make the decision-making process seamless.
While material possessions can bring momentary satisfaction, they may not fulfill the deeper question of what truly matters to you. Instead of simply indulging in lavish purchases, take this opportunity to explore meaningful pursuits that align with your passions and purpose.
Selling your business without a compelling plan for the future might leave an unsettling void. Embrace the freedom to wake up each day and purposefully choose how to spend your time. Avoid filling the void with fleeting pleasures and seek endeavors that ignite your passion and drive.
Discovering another passion to consume your time will lead to a purposeful and fulfilling post-business life. Embrace the opportunity to invest in experiences that add value and meaning to your days.
As the saying goes, “Waste your money and you’re only out of money, but waste your time, and you’ve lost a part of your life.” Embrace the journey of finding purpose and fulfillment beyond the business, and your post-sale life will be enriched with purpose and contentment.
Am I Truly Committed to Selling My Business?
Before moving forward, ask yourself if you are genuinely committed to selling your business or if this decision is based on impulse. Take the time you need to make a thoughtful choice. Seek advice from trusted friends who have successfully sold their businesses, keep a journal, read up on the topic, and thoroughly explore all aspects of your decision.
Keep in mind that selling a business is a process, not an instant event. Preparing your business for sale and successfully completing the exit can take several years. Rushing the process may result in missed opportunities and wasted time. Take the necessary time to ensure you have thoughtfully and purposefully made this decision.
As the saying goes, “Unless commitment is made, there are only promises and hopes but no plans.” Take the time to commit fully to your decision before proceeding with the selling process.
#3: External Factors
Is The Timing Right to Sell My Business?
Timing the sale of a business is challenging, but it can be managed. The ideal time to sell is when your business and industry are reaching their peak. Seek advice from seasoned professionals in your industry to gauge the current market cycle. Consider both industry trends and broader economic cycles. However, keep in mind that, like most important decisions, perfect timing is elusive.
If possible, align your goals with the timing of the sale of your business, industry, and market. Alternatively, avoid selling during severe economic downturns or industry recessions. Aim for stable revenue and preferably growth rates exceeding inflation. If your revenue is unstable, it may be wise to consult an expert to evaluate whether stabilizing your revenue first is the better course of action before putting your business on the market.
How Does Competition in My Industry Affect My Decision?
- Is competition intensifying in my industry?
- Are new venture-backed entrants posing a threat to my market share?
- Do I possess sufficient capital to withstand intense industry competition?
- Are indirect competitors poised to permanently reshape the industry landscape (e.g., Uber vs. the taxi industry, Airbnb vs. the hotel industry, online news vs. traditional news)?
If competition is on the rise, and you lack the passion and capital to effectively compete, it’s best to exit swiftly. The value of your business will decline in proportion to decreasing revenue and cash flow. It’s crucial to confront the reality and sell while your business still holds value. Regrettably, many entrepreneurs hold on for too long, only to find that their business has lost its worth.
Avoid this common mistake.
“We’ve done better by avoiding dragons than by slaying them.” — Warren Buffett
#4: Value & Options
What is My Business Worth?
- Have you recently had your business appraised?
- Are you aware of the current multiples in your industry?
- Have multiples remained steady within your industry, or have there been significant variations over time?
- Do you know what changes you need to make to unlock the value of your business?
- Do you know what your business would be worth if you made these changes?
Your business is likely one of your most valuable assets and may comprise the majority of your net worth. Having an accurate idea of its value is crucial for intelligent financial planning. It’s wise to pay a professional to value your business.
It’s also important to have a clear understanding of how much your business is worth and the steps you can take to increase its value. Being prepared and regularly taking measures to enhance its worth is essential, especially for unexpected buyers who approach you directly. Be ready for such opportunities.
If you realize there is significant value in your business and your net worth is highly concentrated in it, consider diversifying your risk. There are various options available, such as a recapitalization or an outright sale. An appraisal is a prudent starting point for your financial planning.
Knowing the value of your business allows you to set a bottom-line price before a competitor approaches you. Without such preparation, you might be caught off guard and sell your business for far less than its actual worth.
“Risk comes from not knowing what you are doing.” — Warren Buffett
What Are My Exit Options?
Consider the various options for exiting your business:
- Selling or gifting it to family members.
- Evaluating potential fits within your management team or from within the company.
- Exploring a sale to a competitor.
- Assessing the possibility of a buyout by a private equity group.
Determining the most suitable exit options for your business and industry can be challenging without proper experience. Seeking a third-party assessment of your business can provide an unbiased view and help unlock the most value.
This assessment will outline the available exit options and the necessary steps to prepare your business for sale. Depending on your chosen path, different actions will be required if you plan to sell to an insider, a competitor, or a financial buyer. Each option comes with its own set of risks and opportunities that should be carefully considered before making a decision.
Beyond conventional sales, there are creative alternatives to explore. Clearly defining your goals will allow a professional to present the most practical exit options for your business while offering insights to mitigate associated risks.
“Don’t be afraid to give up the good to go for the great.” — John D. Rockefeller
Is the Value of My Business Increasing or Decreasing?
When the value of your business is decreasing, it’s essential to act promptly and consider your options. If you lack the motivation to turn things around, consider the opportunity cost of holding onto a declining business. Consistent drops in revenue often lead to a decrease in business value, making selling challenging. On the other hand, selling a business with stable or increasing revenue is much smoother.
Take an honest look at your business and assess if a turnaround is feasible. If burnout and increasing competition are hindering your progress, it might be time to make a move. However, if the decrease in value is due to a one-time event or internal factors that can be fixed, consider addressing those issues before proceeding with a sale.
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” — Warren Buffett
Is My Business Ready to be Sold?
Evaluate the current salability of your business:
- Identify any deal-killers and determine how long it would take to fix them.
- Decide if it’s worth investing time and energy to address these issues or if selling as-is is the better option.
- Calculate your personal ROI if you choose to fix the deal-killers before selling.
- Assess the opportunity cost of attempting to cure these issues versus pursuing other ventures.
To maximize the value and salability of your business, it’s ideal to invest several years in preparation. Improving salability involves eliminating deal-killers and optimizing the strengths of your business. Prioritize fixing any critical issues first and then focus on changes with the highest ROI.
If time and energy constraints prevent you from fully preparing your business for sale, you can make necessary changes while it’s on the market. Keep in mind that an unprepared business may fetch less than its full value.
“See things in the present, even if they are in the future.” — Larry Ellison
In the realm of crucial decisions, selling your business ranks among the most significant. To navigate this process effectively, it’s essential to adopt a structured framework as your guide.
- Goals: Lay the groundwork by carefully examining your objectives and the potential costs of missed opportunities. Your goals form the bedrock of your decision-making.
- Internal: Delve into the emotional aspects of the sale, particularly those concerning your happiness and fulfillment. This introspective phase requires ample time, especially if you are new to deep soul-searching.
- External: Once you have thoroughly explored your emotional objectives, turn your attention to external factors. Consider the optimal timing for selling your business and assess the competitive landscape in your industry.
- Value & Options: Armed with insights from the previous steps, you can now commit to the decision-making process. Explore essential details like the timing, value, exit options, and salability of your business.
By adhering to this professional framework, you can confidently navigate the path to determine your company’s future, ensuring that all crucial factors have been thoughtfully considered.