When should I sell my business?
There is an alternative universe where Mark Zuckerberg sold Facebook to Yahoo for 1 billion dollars in 2006. In the same alternate universe, you’re reading this article and had to look up who Mark Zuckerberg is. Of course, you didn’t look him up because he didn’t sell Facebook in 2006 and is currently sitting as the third richest person in the world, touting a net worth of approximately 180 times what Yahoo offered him for his small start-up two decades ago.
Mark Zuckerberg isn’t unique. Bill Gates was offered between 6 and 15 million for Microsoft in 1979 and Apple was nearly bought out for 5 billion in 1995. Had the sales happened, these entrepreneurs would likely have lost fortunes and notoriety. Knowing when to sell a business and when not to is essential for any entrepreneur. In this article, we have put together a few key questions to help answer the big question, “Should I sell my business?” However, only you ultimately know the best path forward for your business.
There are three questions you should answer before the big decision to sell or not to sell is made.
Question 1: How do you view your business right now?
Are you excited about what is coming, full of ideas and motivated by a broader vision, or are you tired and ready to move on? Every entrepreneur gets tired, and usually stays tired, but running a business can fatigue an entrepreneur to the point that it is better for them–and their business–to move on. In this case, an entrepreneur may want to make a clean break from their business by selling it in its entirety to a private equity firm or capable buyer.
If that’s not the case, portions of the business can still be sold to bring on additional partners or investors. When Zuckerberg faced the decision to sell Facebook, one of the primary reasons he refused was simply because he wasn’t done with the business idea. He reportedly stated that all he could think of doing with the money from the sale was start another Facebook. Some of his employees did not share his vision and enthusiasm and abandoned the company when the buy-out offer was turned down.
Question 2: What is the financial performance of your business right now?
Timing the sale of a business is essential to achieve maximum market value. Buyers want to see increasing revenue year after year to ensure a return on their investment. Selling at a time of great momentum will naturally increase the value of the business.
In addition, non-financial conditions can lead to an increased valuation of your business. These conditions can be real or largely speculative. For example, an apartment complex near a growing college campus will likely sell for more because of its growth potential rather than its current financials. Similarly, certain businesses can obtain higher prices when demand for their product increases. In the late 90s, companies with a “.com” in their business name were highly sought out, even though many lacked clear paths to profitability or even revenue generation. Today, we see a similar excitement surrounding companies that produce software utilizing artificial intelligence.
These natural fluctuations in attitudes toward high-demand businesses can be exciting, but the financial performance of a business will typically play the largest role in its sale price.
Question 3: What will you do after?
This is a less obvious question. It won’t appear in most guides to selling a business and probably won’t be factored in when you sign the contract. Nevertheless, the answer to this question is essential. An entrepreneur may look at a business sale as relief from the exhaustion of operating a business. The reality is not so simple. Just as a sheep dog in the country would never be content to live a sedentary life in a Manhattan apartment, an entrepreneur has, through their business ventures, developed a drive and work ethic that will result in their perpetual dissatisfaction with the mundane. One recently semi-retired business blogger wrote:
“Having spent so many years building a business and dealing with the constant pressures of family and business life, I’ve found it somewhat challenging to just step off the roller coaster. I do sometimes feel pangs of guilt that I’m not part of the worldwide rat race.”
Having a plan and a purpose after selling a business will help reduce the severity of the transition. Besides, entrepreneurial skills are needed now more than ever in our world. Many retired CEOs, founders, and visionaries can find incredible satisfaction in transferring their skillset and drive to less glamorous nonprofit causes, a world in which those skills are needed the most.
Conclusion:
Answering the question, “Should I sell my business” is difficult; however, it is important to consider the relationship between you and your business, the financial status of your business, and your future. Accounting for these aspects may lead you to sell your business or become one of the richest people in the world. Ultimately, you are the only one who knows the true value of your business and your limits.
Looking to sell your business? We can make sure it’s done right. Contact us at https://johnstunlaw.com/contact-us/
Important: This material was prepared by law firm staff for educational purposes only. Use this to spot issues to discuss with your lawyer, not as a replacement for a lawyer. You should not rely on this info. It may not be appropriate for your circumstances. It may be out-of-date or otherwise inaccurate.
