Every business owner reaches a stage in their journey where they’re left wondering if it’s time to get out.
As they approach this fork in the road - whether they got here strategically, spontaneously, or because of an inevitable business limitation - they’ll need to do some quick calculations. Deciding to sell your business is a big deal for all entrepreneurs, but at this moment in time, is it the right decision?
Before you decide which fork to take, let’s look at 4 common reasons why you, as a business owner, would want to sell.
I’m thinking of selling my business because it’s no longer fun
Do you still have the drive? Or are you feeling deflated at work?
For some, it’s the ‘do or die’ environment of a start-up. For others, it’s the strategy behind solidifying your place in the market. Every business owner finds a thrill in a certain stage of growing their business. But what do you do when that thrill is gone?
While it’s a great thing your business is out of the danger zone, or that your more immediate problems are to do with payroll software or logistics rather than building the newest iteration of your GTM strategy, there does reach a point where running your business just isn’t fun anymore.
If you’ve hit this wall, you have 1 of 2 options.
Either change your attitude and re-align your priorities, or start considering an exit strategy. If you’re constantly feeling tired, rundown, or unmotivated about the state of your business, then the best thing you can do is hand over the reins to someone who will fuel the team with passion and bring the business back to life.
Our company is rapidly growing. When should I sell the business?
You may be experiencing growing pains. Are they something you can fix internally? Or do you need bigger shoes?
It’s exciting that your business is scaling - and quick! The critical factor is being able to fund the growth and this requires investment either through external capital or debt. There are pros and cons to both, such as giving up equity or having to sign personal guarantees to secure funding.
If the business is on the right track, your teams and internal operations are getting stronger and you are overcoming barriers that inhibit growth - then it could be a great time to sell. You will be looking very attractive to acquirers. Again, you will need the funds to keep maintaining the positive trajectory and remain attractive to any possible suitors during the pre-sale period.
Often in a rapid growth phase, business owners question their ability to get the business to the next level. The skills required for the next phase are different from what got you there. Sometimes the best option is to sell, either fully or in part, to a strategic acquirer in order to accomplish your long term goals.
No matter which option you take, it will involve a lot of planning and preparation. It’s worth speaking to an advisor to understand your options.
Is now a good time to sell a business, based on market conditions?
While you may decide it’s time to sell your business, the market may dictate otherwise. Look at your industry. Is the market or your business at its peak? Or is it working against you?
You might be surprised that either of these could work in your favour.
This timing, while tricky to nail down, makes a big difference in deciding whether you walk away with a large payout or one that might have you regretting your decision to sell. This is where early exit planning will provide a serious advantage.
Recognising market maturity
A market (and organisation) goes through different stages during its life cycle from infancy through to decline. Different strategies are employed in these phases to grow and survive - as we discussed earlier regarding rapid growth.
Recognising what stage your industry or business is in should be factored into your exit strategy.
As you move into the later growth stage there will be good indicators for acquirers. The business will secure its footing in the marketplace, the teams and operations will be strengthened. There will still be growth potential in the eyes of an acquirer.
In early maturity, the business will look strong and dependable. The business will still be growing but in a steady and predictable fashion. This is an enjoyable period for an owner but it’s getting close to the tipping point whereby the company can move into the decline phase.
Selling in the growth and early maturity phases will be much more favourable than waiting for decline.
Recognising external market factors
While you are less in control of these factors, looking at the external market will also give you another perspective.
M&A activity tends to ride the waves of economic expansion and contraction. In an expansion, the larger companies tend to ramp up acquisition efforts, even though they pay higher prices.
However, while times may feel uncertain right now, the private equity firms are sitting on more un-invested capital than ever before. The estimate was $2.5 trillion in 2019. These PE funds need to invest to get returns for their investors. We can expect that there will be more activity as these PE firms seek businesses to buy.
In this case, it’s worth keeping abreast of the market movements to determine whether the market is hot or whether you are able (or disciplined enough) to wait for market conditions to be right.
When the M&A market is in a flurry of activity, deals often close much faster and for higher values.
Keeping ontop of market factors has a lot to do with predicting future trends and then getting out before the bubble bursts. You can show your potential buyers how lucrative your product or service is, how they’ll have further growth potential or whether your business will be the best strategic purchase for them right now.
Should I sell my business and retire?
Are you nearing retirement age? Or has a new opportunity presented itself to you?
The number of Baby Boomers in Australia is close to 5-million, making it one of Australia’s largest population groups. And considering only 27% have made succession plans so their business could operate without them, this could seriously impact both the legacy of the business, as well as the terms in which you get to walk away.
This is especially important during the current global circumstances surrounding COVID-19. If your risk profile suddenly shifts, or your business becomes distressed, you’ll have to ask yourself how much time or money you’ll be able to pump into your business and whether that’s worth it for you given either your age or your motivation to stay in the business.
Your exit strategy doesn’t need to be built off the back of something negative. Perhaps, your business has outgrown you. Maybe your skills can be put to better use elsewhere?
Take this example of one of our clients who was in the equipment hire industry. The partners had decided to create their own business model, successfully growing it to about $8M in annual revenue. Here they faced an imminent choice.
While running a $1M company was something solidly in their wheelhouse, running an $8M company was not and the company had outgrown the pair’s skillset.
Rather than try to adapt to these different challenges, the partners knew the business would be able to grow best with someone else at the helm, leaving them to engage in another business venture more suited to their strengths.
Is it time to sell your business? We hope these reflective questions have helped you determine what your motivations are, and whether you will stay or if you will prepare for an exit. While selling your business is never an easy decision, knowing you made the right one should help put you at ease.
If you feel your business isn’t in good enough shape right now to be acquired, then there are things you can do yourself to build value in your business. Start implementing the right drivers now, and design your business to command a premium price when you take it to market.
Learn more about the 8 core drivers that can increase the value of your business.
If you’re still uncertain, speak to one of our advisers. We can evaluate your personal and business needs and help you understand what the best options are moving forward.
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