Whether you wake up one morning with an epiphany, or gradually came to the realization, sometimes you just need to sell. Coming to this decision is a big deal for any entrepreneur.
There are many reasons to sell, from major life changes to one day realizing that you just aren’t a good business owner. Regardless of the reason, selling your business is likely to be full of emotional turmoil. It’s difficult to let go of something that you have built, especially if you have been working on it a long time. Every entrepreneur makes sacrifices to build their business, whether they are financial, emotional, or the time spent creating it.
A lot of times this will lead to entrepreneurs convincing themselves that the business is worth substantially more than it is. Unfortunately, the late nights on the computer and weekends spent away from your family don’t necessarily equate to a higher valuation. Neither does that $10,000 you just spent on signage, or the $80,000 you just put into a new build out. As much as you try to convince the next purchaser that they should spend 10x earnings for your sacrifices, it’s unlikely to be successful.
If you aren’t the right owner for the company, you could dump all the money in the world into the business, and it isn’t going to succeed. Sometimes, it is better to realize that it is the wrong opportunity, and it’s time to get out. Or maybe it isn’t an opportunity at all, but a mistake that you should learn as much as you can from and move on.
There are several points at which a business owner might realize that it is time. In a perfect world, they will realize this when their business is at the height of success, where they can get the best valuation and the highest return on their years of input into the company. However, this usually isn’t the case. A lot of business owners wait until their business is declining before they decide that it’s time to sell, and then by the time they get things organized to put it on the market and it actually sells, the decline has caused substantial damage to the value.
In an even worse scenario, the business owner denies that it is time to sell until they are operating in a negative cash flow situation, where the choice to sell is no longer a choice, and the decision is made for them. Now they face the fact that they can either sell or close the doors, and at this point they will be lucky to sell at all. This is a situation that you do not want to find yourself in as a business owner. The debts continue to mount, which you have to pay off in order to sell, so you have to ask a higher price. As time goes on, and the business does not sell because it is priced too high, the debts continue to climb, and the price you need to get increases with it. By that time, you are in a spiral of disaster with absolutely no options.
So we can all agree that you do not want to face a worst case scenario, but how do you know when it’s time to get out? Here are some signs to watch for.
If you are so exhausted that you don’t want to get out of bed, and the last thing you want to deal with is your business, it’s probably time to get out. If running the business no longer excites and energizes you, then you are not the person to be running it. Your feelings are contagious, and the last thing you want is to bring the rest of the company down with you. If the financials are still healthy, you should consider finding somebody else to run the company, or look into selling.
There are lots of reasons for sales to decline. Many businesses are seasonal, and there are natural fluctuations. There are fluctuations with changes in the political and public financial sectors, and all kinds of local factors that can temporarily affect sales. However, if that temporary effect starts to become more permanent, it is time to seriously evaluate your company. Either it is time to pivot and make some changes within the company to bring sales back, or if that is something that you aren’t motivated or equipped to do, it’s time to consider selling, and fast. You do not want to wait until sales are nonexistent to put the company on the market.
Most startups will experience losses, and many companies will occasionally see a loss in a quarter or two. However, if you are not extremely vigilant and 100% confident of why these losses are occurring and that the company can weather the storm, things may not end well for your business. This is especially the case where liabilities are substantially distanced from collections. If you are collecting money from customers today, but your bills aren’t due for 60-90 days, it can seem like you are making money, when in reality you are not. This is a very common problem when business owners don’t understand that they are using today’s money to pay yesterday’s bills. This model works great when a business is growing, but as soon as sales start to decline, tomorrows bills come due, but the sales have declined too much and the money to pay the bills isn’t there.
If you have seen any of this signs in your company, it is time to seriously evaluate your situation. It can take a year or even more for a business to sell, so it is important to move quickly as soon as you realize that the time has come. Don’t wait until it’s too late.