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How to know when it’s time to sell your business

When something is as close to your heart as a business you’ve built up over many years, it’s often hard to know when it’s time to let it go. Here we offer insight into the mistakes that can be made when an owner hangs on too long and give some practical advice to the uncertain.

We know. Your business is your baby. You have spent years nurturing it and watching it grow; guiding it through the bad times and delighting in its successes. When something is so close to your heart, it’s really hard to know when to let it go.

There are myriad reasons why it might be time to sell a business and sometimes the cause may be entirely out of your control.

However, whatever situation you are in, it’s vital that you don’t let your emotions take over: acting too hastily or hanging on too long can have a seriously negative impact on your final sale price.

Ultimately, there are three main indicators that it’s time to sell: 1) Disenchantment, 2) Debt or 3) Disaster. And, as with most things in life, how you react to these will be key to a positive outcome.

Here, we offer you a little guidance as to whether it really is time to put up the ‘for sale’ sign and how to make the most of your exit.

1) You've lost that loving feeling...

Remember those early days of your business, when you leapt out of bed in the mornings and your mind was buzzing with bright ideas?

Ok, these days you need three cups of coffee to inspire you enough to look at your 'to do' list...but every seasoned business owner knows that after the honeymoon, running a successful enterprise is mostly sheer hard graft.

But there is a difference between a little loss of 'mojo' and total burn-out.

The answers to these these questions to help you find the right direction:

  • Are you still passionate about this business?
  • Are you constantly thinking about doing something else?
  • Is your work/life balance non-existent?
  • Is your business model simply no longer working?
  • Do you just need a holiday?

Now is the time to focus on whether you need to re-assess your core business practices, out-source aspects of your business that could free up more time for development, take a short break and make time for fun...or face reality and plan your exit strategy.

It is vital, however, that you face your demons in the eye and don't procrastinate. All too often, exhausted owners allow their disenchantment to permeate the work-place for too long and end up with a floundering business that will be harder to sell and worth less than if they'd bailed out earlier.

‘Low motivation will ultimately reduce the core value of your business. If you have decided you want to sell, or even if you are just thinking about it, be sure to shake off any malaise and put your best energies into creating a saleable business.’ - Andrew Markou CEO of BusinessesForSale.com

2) Money is too tight to mention...

Debt is the nemesis of any business owner and, unless you can control it, it may be time to cut your losses,

‘If you are borrowing money on a regular basis just to stay afloat, it’s time to look at some alternatives. Can you think a little more strategically in terms of investment? Conduct an in-depth cost-benefit analysis and try to pinpoint where a cash injection might help get your business into a more saleable position.' says Markou

However, pouring money into the wrong area of your business can leave you in a worse position in the long-run. For example, there’s no point purchasing a suite of gleaming new Macs when your customer base is crumbling away. In this case, use your existing technology to focus on your social media marketing strategies. If you make more sales, you can afford to upgrade.

It’s also worth considering whether bringing in new management or perhaps joining forces with another company could help resolve your current problems.

Always bear in mind that however bad things may look to you, when it comes to selling a business – beauty is in the eye of the beholder. Finding a strategic buyer who has just what’s needed to move the business forward may be the answer.

Daniel Barrett, Director of the Corporate Debt Advisory at Credit Square agrees,

'When selling a business with significant levels of debt it is important to be able to articulate three things to a potential buyer: the performance of the underlying business after removing all debt and financing costs, the opportunities available to any buyer to improve the current operations and the level of debt and debt structure that the business could support going forwards.'

To every extent possible the seller should try and demonstrate that these opportunities are real, and that realisation of some of the potential benefit has started.

The key is not to delay until the decision is made for you by bankruptcy. Basically, you need to know when to quit:

‘It’s generally accepted that when existing liabilities are greater than 200% of current assets a business is unlikely to recover. All too often business owners hold on too long and have nothing to bring to the table.’ - Andrew Markou, CEO of BusinessesForSale.com

3) That's life...

Any broker worth his salt will tell you that the best time to sell a business is when it's on an upward trajectory.

Buyers are looking for healthy sales trends, decent gross profit margins, continuing customer annuities and no skeletons in the closet.

That’s all very well, but life has a tendency to scupper our best laid plans. There’s not an awful lot you can do about a family disaster, critical illness, old age or a crippling global recession.

Nevertheless, whatever your reasons may be for selling, and whatever state your business is in, it’s vital to try and present it for sale in its best light as well as having a clear idea of your objectives for the deal and your own future beyond it.

No prospective buyer will look twice at an opportunity unless there’s an encouraging perspective on it. Rob Goddard, Managing Director at Evolution Complete Business Sales says the key lies in preparation,

‘As a seller, you need to be walking into that negotiating room with a clear focus, an open approach and, most importantly, positive suggestions for growth. Know the strengths of your own business but also understand the needs of your prospective buyer so that you can present your business in a way that best addresses them. Be prepared for negative comments – don’t react emotionally, instead keep calm and play to the buyer’s ego. Remember they’ve probably done this before!’

Not every business sale is a happy ending but choosing the right time to sell can save you a lot of money in the long run.

Making that decision is most definitely a blend of instinct, common sense and careful analysis. And when the time comes, if you can combine those with a good dose of positive spin - you may well get a better deal than you hoped for.


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