When Is the Best Time to Sell Your Business?
When is the best time to sell your business?
It’s a big question…but I’d argue that the premise is flawed.
There’s no doubt that there is a right time to sell your company. But trying to optimize for the best time can get you in trouble.
You become the gambler who’s unable to quit while he’s ahead. And for every hand you continue to stay at the table, there’s a greater and greater risk that in the end, you’ll lose.
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It all starts with a concept many entrepreneurs don’t fully grasp. Your business is an asset. It has value as a profit-generating entity, but it also has value as a thing you can sell.
Every business is a combination of these two factors: profit generation and asset value. Your company may be a cash cow: it throws off significant profit but in some cases may be less valuable as a salable asset. On the other hand, you could be unprofitable but have high revenue and a sky-high valuation (these are your tech companies).
To get a sense of what your business could be worth, you need to understand the valuation formula for your particular space. You can start with my old friend Google, but I suggest connecting with a financial professional who can help you understand the estimated value of your business.
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I believe as an entrepreneur, it’s your fiduciary duty to be prepared to sell, even if you never think you will. For one thing…there’s a good chance you’ll change your mind.
Your senior executives will want upside for their loyalty.
You’ll want to see the company live on, and at some point, that can’t happen without ushering in new ownership.
And the longer you hang on, the riskier your business becomes.As is often the case, it all comes down to timing.
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The right time to sell is when selling helps you hit your “number.”
Your number is the dollar amount you’ll need to live comfortably for the rest of your life. The full amount may not come from the sale of your business, but a good chunk of it likely will.
This number should NOT be an educated guess. It’s far too important. You need to work with a financial planner to figure it out (connect with us if you need a referral).
But here’s the thing.
If your number is $10 million (or $100 million) and your business is worth that…beyond that point you can keep your business, but understand: you’ve already made enough money to hit your number. That could happen at age 20, 30, 40…your age is not the point.
You should at least consider selling when you have a buyer willing to pay enough for you to hit your number. Explore getting your chips off the table. Because if you keep hanging around, the value of your company could go up—but it could go down.
To be clear: selling is ultimately your decision. And there is a lot more to running a business than the money you make.
I don’t actually care if you sell.
I DO care that you are informed enough to make an educated decision.
That might be 10 years from now. It might be never. But it might be tomorrow.
Interested in finding out? Hit reply and we’ll connect you to a resource that can help.
P.S. We ran a webinar on this exact topic. If you attended our previous webinar on Selling Your Business, this is part 2 of that conversation. We covered identifying a buyer, due diligence, and life after the sale. Watch the webinar recording now.
