Are you feeling burned out from running your business?
Is managing employees getting old?
How many family dinners have you been to this month?
A lot can be going through your mind after you’ve owned your business for a while. You may be asking yourself, “when is the right time to sell my business?”
If selling your business has been crossing your mind more frequently, but you’re not sure if it’s a good time to do so, then you’re in the right place.
At MidStreet, we’ve worked with hundreds of business owners who weren’t quite sure if they were ready to sell their businesses. In some cases, running the business for a couple more years before selling made the most sense. In other instances, once the owner knew what their business was worth, they were ready to sell immediately.
Whether you’re ready to retire, or there’s a more pressing issue at hand, knowing the right time to sell can help you feel much more comfortable taking your business to market.
In this blog, we’ll discuss the various reasons, both financial and personal, that could mean it’s the right time to sell your business.
Let’s get started.
Personal Reasons to Sell
Running a business amounts to much more than the numbers on your income statement. Behind those numbers are hours of stress, hard work, strain on relationships, and several other personal factors that don’t just affect your business, but also your well-being.
That being said, there are certain personal reasons that could be indicators it’s time to sell your business.
Burn-Out or Loss of Interest
Running a business is often a 24/7 job, which can lead to stress or exhaustion. If the burn-out you’re experiencing is no longer remedied by a vacation with the family or a few days off to yourself, then it could be time to consider selling your business.
If you’re experiencing burn-out, you need to ask yourself where you draw the line. Stress and exhaustion may be an unavoidable part of business ownership at times, but if it becomes too much, it can take a toll on you, your business, and your relationships.
If you’ve given it very careful consideration and know that continuing to run your business will cause you more heartache than it’s worth, then it may be time to sell.
Something else we’ve seen is a general loss of interest in the business. This usually occurs when a business owner no longer feels challenged running their business and have started just going through the motions.
When the excitement of starting a business or meeting certain financial goals wears off, you may not feel as fulfilled by running your business as you once did.
If this is the case, it could be time to sell and use the proceeds to embark on a new adventure.
Time with Family
When you started your business, you might have done so with the goal in mind of creating wealth for your family to enjoy, and to one day leave behind a legacy for your children and your grandchildren.
Unfortunately, since running a business is such a demanding job, it can be easy to let it take precedence over the time you spend with your family.
Before you know it, the kids are graduating from college, beginning their careers, and starting families of their own. There’s a good chance you’ll want to be a part of all that.
If you know that maintaining ownership of your business will prevent you from enjoying the time you have left with your family, you may want to consider selling.
After all, you had your family in mind when you started your business. They were probably on your mind during all those late nights on the job, too. Depending on your circumstances, it may be time for you to sell your business so you can start spending more time with the people you love the most.
Sometimes the reason you’re considering selling your business is complicated. Sometimes, as can be the case with retirement, it’s as simple as this: you’ve put in your time and now it’s time to relax.
In fact, retirement may be one of the motivating factors you’ve used to grow your business over the years.
If you’ve had your eyes set on retirement for some time now, and have developed a solid exit plan, then selling your business is a great way to sure up your nest egg and retire comfortably with the satisfaction of a successful business sale in the rear view mirror of your new truck.
Simply put, there are few things more important than your health. If a serious health concern surfaces, it can put things in perspective for you in a way that you’ve never experienced.
Part of that perspective may be realizing that the best thing you can do is sell your business and focus on improving your condition or planning your estate.
This can be a hard decision to make because of how suddenly a health issue can change all your plans. It can feel like you’re losing control, and the one thing left that you can control is your business.
While this is understandable, you may want to consider selling, even if it’s hard to relinquish that control. It’s likely that you won’t be able to run the business quite as well if a major health issue surfaces.
If you want all the hard work you’ve put in to benefit your family, then selling before profits have a chance to decline could be the right thing to do.
Financial Reasons to Sell
While there are several valid personal reasons to consider when deciding to sell your business, there are other factors that could indicate it’s a good time to sell.
What if you're a healthy, young, passionate business owner with a great work/family balance?
Is there a scenario when it would make sense to sell?
Let’s take a look at some of the more financially motivating factors that could indicate it’s the right time to sell your business.
The Business Life Cycle
You’ve probably seen the charts that depict an average business life cycle. If not, they usually look something like this:
Looking at this graph, it may seem obvious when you should sell your business. On the orange “X,” right?
True, but as you’re probably aware, increases and decreases in performance rarely happen at a constant rate. So, the average life cycle of a business probably looks more like this:
While that model is a more realistic representation of a business life cycle, you don’t have a crystal ball. While the historic performance of your company is a good indicator of what’s to come, there are several unpredictable factors, such as an economic decline or technological advancement that can impact your business positively or negatively.
If you’re trying to determine where you are on the business life cycle, then your view might look more like this:
You’ve probably experienced regular fluctuations in earnings throughout the years. It’s the nature of owning a business.
Every time there’s a decline, you have to ask yourself if it’s just a normal dip in revenue, or if it’s the beginning of a long-term pattern.
Ideally, you want to sell right when your business reaches its mature stage, but as illustrated above, it can be hard to know when you’re there.
What if you decide to sell as your business is on the rise and then realize you could’ve held on for a few more years and really maximized the purchase price?
Conversely, you could decide to sell while profits are increasing and then watch from a distance as your industry takes a negative turn.
We explain all this just to say that yes, once your business enters its mature stage, this is a great time to decide to sell. But, it can be extremely difficult to get the timing just right.
The Bottom Line: don’t let greed or pride cause you to hold off on selling if now is a good time for you. Take into account the risks of earnings decreasing and exit when it makes financial sense.
While it’s certainly better to sell your business before any semblance of an industry decline, if it happens, you should try to sell as soon as possible.
You don’t want to wait around for the industry to bounce back so long that your business loses half it's value. Trust us: it happens.
One of the most exciting indicators that it’s a good time to sell is when you’re still happy running your business, but it’s growing so quickly that you’re not sure you can manage it alone.
This could mean that it’s time to consider sell to a private equity group, which could be the exact kind of exit you’re looking for.
When you sell to private equity, you may have the opportunity to stay in your current role and hold a minority stake in the private equity group’s entity (let’s say 20% for example).
When it comes time for them to sell your company (potentially 3-7 years after purchasing it), you’ll hopefully achieve a return on your ownership percentage far greater than the original sale price of your company.
That means you’ll benefit from selling your business not once, but twice. And for some private equity groups, you could receive the benefits of selling three or four times.
This kind of exit is perfect for someone who still has interest in their business but would like to dial back their responsibilities while seeing a financial benefit to growing their business.
The Right Time for Your Business
At the end of the day, the right time to sell your business is all dependent upon what your goals are. If you and your intermediary are confident that it doesn’t make sense to wait, or if you have a pressing circumstance like a health issue impacting the way you run your business, it could make sense to sell now.
In other situations it could make more sense to be intentional about making certain changes and sell five years down the road.
A key component of this decision is the way you balance your emotions and personal life with the financial considerations of selling your business. Making an extra million may not be worth it if it will prevent you from spending time with your family or taking care of your health.
On the other hand, if running the business is making you happy but will end up costing you money, that’s something else to consider.
Whether you’re ready to sell today or want a better understanding of when the time is right for your business, contact us today. We’d love to share our expertise and answer any questions you may have.