Are you considering selling your business?
This simple one-question quiz will help you better understand your motivations behind this thought. A better understanding of your underlying motivations can help you make the right decision.
Select the answer closest for your actual reason for thinking about selling your business.
- A. "I'm selling my business because of the cash I will make on the sale".
- B. "I'm just tired and it is not fun anymore. "
- C. "I have a lot of irons in the fire and can't keep up".
- D. "I'm ready to retire from owning my business".
A. "I'm selling my business because of the money I'll make on the sale".
This is rarely a good answer if it's the primary answer. Most small businesses sell for 1 to three times yearly cash flow after adding back all proprietor salary, benefits, fringes, interest and amortization/ depreciation.
Larger mid-sized businesses generally sell for to 3 in order to 7 times cash flow after deducting for the price of executive management. While this sum can be substantial, it is usually only a few times what you should make this year.
Continuing on with the business will usually make you more money over time. On the other hand if you have an offer at hand from a public company at 20 times income, take it.
B. "I'm just tired and it isn't fun anymore. "
This question requires careful digging to the reasons for the thought. If you are really ready to get free from the business, then it is a good cause. If the real reason is that you are simply tired under the current conditions and the moment things improve you will get excited again, believe long and hard.
Often during the sales procedure your broker, intermediary, or other advisor will provide coaching to improve obvious defects in the commercial to make it more salable. Sometimes measurable improvements occur for that business. Suddenly the owner doesn't really want to market now that things are moving again.
This is really a bad situation for everyone. If what you need is coaching to get free from a rut, hire a coach; don't sell the business . But, if you are really mentally done, sell the business before you completely run it into the floor.
C. "I have too many irons in the actual fire and can't keep up".
This is a justification to sell a business. It is a somewhat common occurrence for multi-location providers who either buy one too many sites or just end up getting one or two sites that are too far to manage.
Often the constant attention you must diverte for an under-performing site will lower earnings of the entire chain. Just remember when pricing the underperforming site available that if your not selling much when it comes to profits or revenues your not going to get much when it comes to price. An old adage that applies here is how the first loss is the cheapest loss. In this instance expect you'll take your loss and move on.
Another variation may be the entrepreneur who has a new venture that is actually overtaking the older established business. Time constraints, administration abilities, and variations in potential down stream financial returns could make it desirable to sell the older business. This could free up resources allowing better overall financial results.
D. "I'm ready to retire from owning my personal business".
This is the king of reasons to market. Just make sure its true. Selling a business can indicate walking away from it completely. Retiring sellers often want to think that they'll be invited guests indefinitely.
Usually once the nuances of the business are understood the new owner may wish to take the reins and run the business their way. At settlement you will sign an enforceable non-compete that legally and ethically obligates you to definitely leave your old client base behind.
Another frequent issue is how the retiring owner has run the business "just to satisfy my needs" the last several years. In those instances the lower performance is what the business sale price will probably be based on. If you as a retiring owner want the entire price based on what the business could do - generate those results yourself and sell the business when the numbers are strong.
In general buyers would be the least suspicious about dealing with retiring sellers. When the retiring owner has run the business well as much as the end they can often get a small premium on the price.
The Bottom Line
There are thousands of variants to these four reasons to market your business. Each variation comes down to the same underlying thought process-are you selling due to short term issues you will overcome or are you selling because it is time to get out? No one can answer this question for you personally but your future success and happiness may rely on getting you it right.
If business is slow inside your industry but you are hanging on, and you like the business around another career, then don't sell. Get the advertising, accounting, coaching or other help to get from your rut and make it to the good occasions.
If you are completely burnt out, it is really time to retire, or you have much better things coming then sell the business while it is still performing well to be able to maximize your sales price.