Understanding what buyers are looking for is critical
I sold my first business at the age of 23, and it was the right time. I sold another business venture at 40 and wished I had kept it. I sold my main business to partners when I was 52.
For the past seven years, we have been helping business owners build value in their businesses and, in some cases, help sell them. When it comes to selling your business, it is not always about age; it’s about time and a few other considerations.
The big question is, is now the right time for you to sell your business? Here are a few things you might consider as you process your decision.
- Why am I selling? Obviously, you are considering selling your business, or you probably wouldn’t be reading this column. Because there are a variety of reasons why one might sell a business, including but not limited to the following:
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- Financial reward
- You see other opportunities where you can spend your time and energy to make more money
- Family commitments
- Health reasons
- You have built the business to your maximum potential and believe someone else could take it to the next level.
- You are bored with your current business model
- You are burned out
- You are ready to retire
Understanding your motivations for selling your business is extremely important. Not only do you need to be able to verbalize this reason to others, including friends and family, staff and potential buyers, but also you need to be able to critically examine those reasons and determine whether or not they are the right reasons for you at this point in your life.
- . Is your business profitable enough to be sellable now? Most businesses are not sellable, and even the best business brokers report that they are lucky to sell 50 percent of the businesses they list. The number one reason businesses don’t sell is that they are not profitable enough for a new owner to buy and pay back the investment in the time they require. To determine if this is the right time to sell your business, you will need to consider whether or not the financial picture presented by your financial statements will make enough sense for prospective buyers. You may think your business is worth any given price from $10,000 to hundreds of millions of dollars; however, there is a good chance that unless you have been paying considerable attention to creating a healthy bottom line over the past few years, you may not be able to get your asking price.
In determining if this is the right time to sell, you will want to consider whether or not you need time to clean up the financials, reduce your expenses and improve your profitability. If you have not had a very healthy three years of profits, this might not be the ideal time to sell.
- Are you patient enough to sell your business now? Sure, you want to sell your business now; however, selling a business is not for the faint of heart or those who are impulsive and impatient.
We recently worked with a seller who thought his business would sell immediately to the first buyer who came along. Fifty-Four interested parties later, and after months of hard work and due diligence, the sale finally went through. Prospective buyers will question every aspect of your business and want to know the reasons for many of your decisions and operational processes. Answering similar questions time and time again can be draining and time-consuming.
Selling your business is a roller coaster ride that is much harder to navigate than selling your house. The average time to sell a business is between six months to one year. Some businesses take much longer to sell. You will need patience as you attempt to sell your business and navigate the negotiations, abrupt buyers, and due diligence process where prospects pore over every detail of your business.
While there is never a right or wrong time to exit your business, understanding the business process and what buyers are looking for is critical.
Your business may be the most valuable asset you have. Exiting the business and recovering your investment should concern you as you move on to your next stage of life. Is now the right time to sell your business? It may very well be, but …
Dave Fuller, MBA, is an award-winning business coach and a partner with Pivotleader Inc.
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