The decision to sell your company is challenging. You have invested years or decades painstakingly building your business and have made countless sacrifices along the way. It’s an emotional determination that should not be taken lightly.
There are four important factors to consider when mulling over what to do with your business:
- Your goals (personal, financial, business)
- Internal factors (emotions)
- External factors (timing and competition)
- Your business value and exit options
We can provide guidance on the external factors (#3) and your business value and exit options (#4). But when it comes to your goals (#1) and internal factors (#2), it’s you who must ultimately figure things out.
You can’t decide whether to sell your business by following a simple checklist. Rather, the decision to sell (or not) should be made deliberately, taking all factors into consideration and balancing facts and emotions with logic and intuition.
The four factors above are not all-encompassing. Rather, they are meant to be jumping-off ideas to further explore when contemplating the sale of your business. Everyone’s situation is different, and many people will need to take additional factors into account that aren’t addressed here. Start with these ideas and see where your journey takes you.
“Questions confine answers. When there are no longer questions, answers are no longer bound by them.” — Lao Tzu
Table of Contents
#1: Your Goals
- Would selling my business help me achieve my long-term goals?
- Do I need to sell my business to achieve my financial goals?
- What other goals can I achieve if I sell my business?
#2: Internal Factors
- Would selling my business make me happier?
- Would selling my business cure my burnout or boredom?
- How will I spend my time after I sell my business?
- Am I committed to the process of selling my business?
#3: External Factors
- Is the timing right to sell my business?
- How does competition in my industry affect my decision?
#4: Value & Options
- What is my business worth?
- What are my exit options?
- Is the value of my business increasing or decreasing?
- Is my business ready to be sold?
#1: Your Goals
Start the process by clarifying your goals — this allows you to place all other factors within the context of your long-term aspirations. A lot of factors must be considered when deciding to sell your business, and considering all of the factors at once can be overwhelming.
But be honest with yourself about your long-term goals. The risk of making a hasty decision is that your decision may not align with your long-term goals. You may back out of the sale or later regret selling your business if you sold prematurely and the sale didn’t help you accomplish your goals.
Would Selling My Business Help Me Achieve My Long-Term Goals?
- What are my long-term goals?
- Would selling my business help me achieve my long-term goals?
- What am I trying to accomplish?
- What are my goals, and how does the sale of my business help me achieve those goals?
Align your long-term goals with the sale of your business.
If your business is preventing you from achieving your goals, you should sell your business. If selling your business is critical to achieving your goals, spend additional time planning your exit to help ensure the sale accomplishes your goals.
Is my goal to sell my business and become financially independent?
If so, get your business appraised and develop a plan for increasing the value of your business, then track your results to ensure you meet your objectives. Prepare a personal financial and tax plan to ensure your exit will meet your financial goals.
Is my goal to sell my business so I can start another business or switch industries?
If so, consider your lost opportunity cost and the cost of remaining in the business.
What am I losing now by not pursuing my next business or opportunity in another industry, or a different goal or dream?
Ideas are infinite, but time is finite. You have a limited number of ideas you can pursue in your lifetime.
There is a limit to how much you can accomplish, and the decision to sell your business should always begin with a thorough and careful review of your long-term goals. If your goals are unclear, then the decision to sell your business will be based on a rocky foundation, and you are unlikely to commit to the sale, which will thereby minimize the value you extract from the sale.
“You are that which you are seeking.” — Saint Francis of Assisi
Do I Need to Sell My Business to Achieve My Financial Goals?
- What are my financial goals?
- How do these fit into my long-term plans?
- What is more important — my financial goals or other goals I may have set?
- What am I going to do with the money?
- Is my goal to take money off the table and diversify my risk?
If you must sell your business to achieve your financial goals, consult with a financial planner to ensure you can meet your financial objectives upon a sale and a CPA to consider the tax implications of the sale.
For most business owners, the sale of their business achieves a personal long-term goal. They depend on the sale to help them achieve their financial goals. It’s important to separate your financial goals from your non-financial goals to establish a clear outline of what you want.
Starting a plan with numbers isn’t wise — after all, money is always a means to an end and not an end to itself. What stands behind the numbers? First, clarify your long-term goals, and then assign numbers to the goal, if possible.
“Once you have enough money, it’s not about the money.” — David Baughier
What Other Goals Can I Achieve if I Sell My Business?
When making the decision to sell your business, consider the lost opportunity cost. Pursuing opportunities is a mutually exclusive decision if you believe in focus. Pursuing more than one objective at a time dilutes your focus and lowers your chance of overall success. There is a significant cost to holding onto a business in which you have lost your passion, especially if its value continues to erode.
If remaining in your business is costing you $500,000 per year due to the value you place on lost opportunities, then holding onto your business for an additional three years will cost you $1,500,000. If your business is worth $5,000,000, it may make more sense to sell your business now for $4,000,000 and experience a $1,000,000 short-term loss, rather than $500,000 per year, so that you can pursue other opportunities.
While the decision to sell your business can’t always be reduced to numbers, it can be helpful to look at the sale of your business from multiple perspectives.
In addition, not all industries are created equal and careful consideration must be given to when to jump from one ship to another.
As Warren Buffett once said, “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.”
Many entrepreneurs make the common mistake of thinking that the grass is greener on the other side and that other industries offer more potential than the one they are currently in. If you believe your industry is in decline, consider consulting with other entrepreneurs who have experience in multiple industries, or ask the opinion of a professional who deals in multiple industries. An M&A advisor, for example, likely has experience in various industries and may have perspectives that you lack.
If your other goals are non-financial, your decision can be especially difficult, and you must carefully weigh your options. Life is short.
What is owning my business precluding me from doing? What is that experience worth to me?
Only you can decide.
“Intelligent people make decisions based on opportunity cost.” — Charlie Munger
#2: Internal Factors
Would Selling My Business Make Me Happier?
- Am I happy? Be honest. Am I really happy?
- Is my business making me unhappy?
- Would selling my business make me happier?
Beware of trading one set of problems for another.
Entrepreneurship is a struggle. No entrepreneur is happy 100% of the time. Look at yourself objectively and determine if a change might make you happier, but beware of trading one set of problems for another.
Ask yourself if the root of problems in your business is a lack of management skills or if the problems are caused by factors beyond your control, such as heightened competition in your industry. If your problems are due to a lack of management skills, then trading one business for another will not solve your problems.
On the other hand, certain industries are not known for creating happy entrepreneurs, such as those with less-than-ideal customers (liquor stores, payday loan businesses, collection agencies), long hours (restaurants, home health care, retail), demanding clients (professional services), or low margins (personal services). If the general environment of your industry is an unhappy one, and you value your well-being, then consider making a change.
Would I keep my business if it made me happier? Would I keep my business if I could restructure my schedule and spend 80% of my time on high-value activities I enjoy and less time on minor details?
If so, then restructure your business to focus on what you love to do and your strengths. If you have lost passion for your industry, and you have a strong gut feel you need to make a change, then develop a definite plan to exit your business soon.
“The price of anything is the amount of life you exchange for it.” — Henry David Thoreau
Would Selling My Business Cure My Burnout or Boredom?
- Am I burned out?
- Have I taken a vacation recently?
- What other options have I considered or attempted to cure my burnout?
Burnout is normal in all endeavors, and all entrepreneurs should make time for regular relaxation to de-stress. Professional athletes periodize their training. CEOs take regular time off to recharge. You should do the same.
Burnout is normal if you aren’t taking time off. Just because you are burned out doesn’t necessarily mean you should sell your business. First, determine the cause of your burnout and evaluate if selling your business will be a cure or if other measures are more appropriate for rekindling your passion.
If your burnout is due to employee issues, then it’s time to either upgrade your management skills or upgrade your team itself. Trading your business for one in another industry will not help if people-management issues are at the root of your burnout, and if you don’t upgrade your skills.
If you haven’t taken a vacation in a long time, other methods are available for relieving burnout, such as utilizing stress management techniques or restructuring your business to minimize activities you aren’t good at or that cause you stress. First, attempt to relieve your burnout. If your attempts are not successful and you still lack passion for your industry, are bored and in need of a change, and if you have attempted to address your burnout and boredom one too many times without effect, then perhaps it’s time for a change.
“Everything considered, work is less boring than amusing oneself.” –- Charles Baudelaire
How Will I Spend My Time After I Sell My Business?
- What would be different in my life if I sold my business?
- The question is not, “What will I do with my money when I sell my business?” The real question is, “What will I do with my time when I sell my business?”
The question of what to do with your life is a difficult one for entrepreneurs to face. Most business owners are so busy that they don’t have time to confront the deeper questions in life. They are so busy playing whack-a-mole in their business that they don’t have the time to face life’s existential questions.
How you spend your time should be based on your values. Your values are the foundation on which to make decisions. Having a clear and documented set of values makes the process of deciding how to spend your time simple.
Spending the proceeds of your sale on material things may leave you unfulfilled. Yes, a trophy can be a gratifying purchase. However, drowning yourself in material pleasures avoids the existential question: “What is most important to me in life?” This may be the first time in your life you have the freedom to wake up and decide how to spend your day. Will you fritter away your days buying toys, or do you plan to pursue something more meaningful?
If you have no compelling way to spend your time after you sell your business, then selling may leave a void in your life. If this void isn’t filled, then your life may lack meaning. Sitting around the pool, sipping margaritas on a giant, inflatable pink flamingo, becomes unfulfilling after a while for most driven entrepreneurs.
You must discover something else you are passionate about to consume your time, or you will be left with a void once you no longer own your business. Don’t avoid the real question by drowning yourself in material pleasures.
“Waste your money and you’re only out of money, but waste your time, and you’ve lost a part of your life.” — Unknown
Am I Committed to the Process of Selling My Business?
Am I truly committed to the process of selling my business, or have I made this decision based on an impulse?
Move forward with your plans only if you are fully committed. However, be aware that doubts always remain. Take time making your decision. Talk with trusted friends who have successfully sold their businesses. Journal. Read. Explore your decision from all angles.
Selling a business is a process, not an event. The process of preparing a business for sale and successfully exiting takes several years for many entrepreneurs. Shortcutting the process will leave money on the table and may waste your and others’ time if you begin the sale only to change your mind later. Only you can answer if you thoughtfully and purposefully made this decision, or if an impulse is driving you. If you are still on the fence, take more time to explore the decision fully.
“Unless commitment is made, there are only promises and hopes but no plans.” — Unknown
#3: External Factors
Is The Timing Right to Sell My Business?
Timing the sale of a business is difficult, but it can be done. The ideal time to sell is when your business and industry are about to peak. Consult with veterans in your industry to obtain their opinion regarding the current market cycle. Consider both industry cycles and macroeconomic cycles. However, remember that, as with most important decisions, the timing will never be perfect.
Align the timing of your goals with the timing of the sale of your business, industry, and market, if possible. Otherwise, avoid selling in a severe economic or industry recession. Your revenue should be stable and preferably growing by the rate of inflation or more. If not, have an expert analyze your business to determine if it may make more sense to stabilize your revenue before putting it on the market.
“Time is an illusion, timing is an art.” — Stefan Emunds
How Does Competition in My Industry Affect My Decision?
- Is competition becoming stronger in my industry?
- Are new venture-backed entrants threatening my market share?
- Do I have enough capital to fight a competitive industry war?
- Are indirect competitors threatening to permanently change the structure of my industry (e.g., Uber vs. the taxi industry, Airbnb vs. the hotel industry, online news vs. traditional news)?
If competition is increasing and becoming more fierce by the day, but you lack the passion and capital to compete, get out as fast as possible. The value of your business will decline proportionally to a decline in your revenue and cash flow. Face the inevitable and sell while you have something to sell. Unfortunately, we see too many entrepreneurs hang on for too long, only to have nothing valuable left to sell.
Don’t make 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 I had my business appraised recently?
- Am I aware of the current multiples in my industry?
- Have multiples remained steady within my industry, or have there been significant variations over time?
- Do I know what changes I need to make to unleash the value of my business?
- Do I know what my business would be worth if I made these changes?
Your business is likely one of your most valuable assets and may comprise the majority of your net worth. Intelligent financial planning is difficult without having an accurate idea of the value of this most valuable asset — your business. It makes sense to pay a professional to value your business.
It’s smart to have an idea of how much your business is worth and the steps you can take to increase its value. It’s best if you and your business are prepared at all times for the unexpected buyer, and you regularly take steps to increase the value. The buyers most likely to pay the highest price are those who approach you directly, unsolicited. Be prepared for them.
Consider diversifying your risk if you realize there is significant value, and your net worth is highly concentrated in your business. There are many options for diversifying your risks, such as a recapitalization or an outright sale. An appraisal is the most prudent place to start when planning your finances.
Knowing what your business is worth enables you to determine a bottom-line price before a competitor approaches you. Without such planning, you may be caught off guard and sell your business for far less than what it’s worth.
“Risk comes from not knowing what you are doing.” — Warren Buffett
What Are My Exit Options?
- What are my options for exiting my business?
- Am I considering selling or gifting my business to family members?
- Is my management team, or someone on the inside, a potential fit?
- Is a sale to a competitor most practical?
- Is a private equity group likely to buy my business?
Most entrepreneurs lack the experience to determine exit options most suitable for their business and industry. Consider having a third party perform an unbiased assessment of your business to help you determine the exit options that will unlock the most value.
This assessment should lay out your exit options and steps to prepare your business for sale. Different steps will need to be taken depending on whether you plan to sell your business to an insider, a competitor, or a financial buyer. A different set of risks and opportunities is also present depending on who you sell your business to. You should carefully consider these before deciding which exit option to pursue.
There are also creative alternatives to a conventional sale. Again, before proceeding, establish your goals. With clearly defined goals, a professional can easily and efficiently lay out the most practical exit options for your business along with tips for reducing the risk associated with each option.
“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?
Sell while you are able to extract any remaining value. If the value of your business is decreasing and you lack the drive to turn it around, you should consider the lost opportunity cost of holding onto your business. If revenue continues to decline, so will the value of your business. The value of most businesses decreases due to a consistent drop in revenue. Selling a business with consistently declining revenue is difficult, but it can be done. Selling a business with stable or increasing revenue is far easier.
Take an honest look and ask if you can turn your business around. If you are burned out, and competition is increasing, it’s time to get out. If the decrease in the value of your business is due to a one-time event or an internal factor, and you have time to cure the problem, then do so.
“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?
- How salable is my business right now?
- Are there deal-killers present in my business that need to be fixed? If so, how long will it take to fix them?
- Is it worth the time and energy to attempt to straighten out these issues, or is it best to sell my business in its current state?
- What is my personal ROI if I fix these issues before selling my business?
- What is my lost opportunity cost in attempting to cure these deal-killers?
- Could my time be better used elsewhere?
Ideally, you should invest several years preparing your business for sale to maximize its value and salability. The more salable your business, the more your business will be worth. There are two ways to improve salability: eliminate deal-killers and optimize your business’s strong suits. First, start by fixing any fatal deal-killers. Once these are addressed, then calculate the ROI on the remaining potential changes and start with the highest ROI tweaks.
Not every business owner has the time and energy to fully prepare their business for sale. In these cases, changes can continue to be made while the business is on the market. If your business is not fully prepared, expect to receive less than full value.
“See things in the present, even if they are in the future.” — Larry Ellison
Deciding to sell your business will be one of the most important decisions of your life. Use the framework outlined here for making this decision.
- Goals: Start by first considering your objectives and lost opportunity costs. This is the foundation of your decision.
- Internal: Address the emotional or internal factors of a sale — namely, those relating to happiness. This step takes substantial time, especially if you’re a novice in-depth soul-searcher.
- External: Once you have thoroughly explored your emotional objectives, consider the external factors such as the timing of selling your business and the state of competition in your industry.
- Value & Options: Finally, after considering your goals and both the internal and external factors, you can commit to the process. Only then should you explore the additional facts related to the decision — such as timing, value, exit options, and salability.
By following this framework, you can make sound decisions on your company’s future with the assurance that you have taken the most important factors into consideration.