Every story has a beginning, a middle, and a finish. Business ventures are no different.
You start your entity, grow with it, and end it, when the time seems right.
Like all other natural objects, a business too, has a lifespan. Sometimes, this life span may last for hundreds of years, and sometimes it might only last for a couple of months.
A good businessperson is one who understands and identifies the point where the business is reaching its final stages. Or at least their active role in it.
Entrepreneurs and business owners are the ones who dream big, come up with new ideas, and transform their concepts into profitable realities. However, as I share in my best-selling book, Selling Your Startup, various circumstances and situations might point towards the fact that selling your business may not be the best decision to get the optimum return from your investment.
In this article, we will discuss some of the most common reasons that you may want to reconsider selling your business.
Remember that mastering the storytelling side and how you are positioning your business is critical when it comes to engaging and speeding up the process. This is done via your acquisition memorandum. This is super important to reach a successful acquisition. For a winning acquisition, memorandum template take a look at the one I recently covered (see it here) or unlock the acquisition memorandum template directly below.
Here is the content that we will cover in this post. Let’s get started.
- 1. Lack of Financial Understanding
- 2. Your Company is Your Passion
- 3. Your Company Does Not Have a Competent Management Team
- 4. You Do Not have Clarity of Future Prospects for the Business
- 5. Business Progress and Profitability Is Irregular
- 6. The Workforce Is Not On Board with the Selling Decision
- 7. Confusion in Organizational Structure
- 8. Inability to Pinpoint Value Proposition
- 9. Incomplete or Inaccurate financials
- 10. Temporary or Current Dip in Growth or Sales
- 11. Final Thoughts
1) Lack of Financial Understanding
As an entrepreneur, you might be great at building a business from scratch, and have the ability to turn it into a profitable business. However, you may not necessarily have the financial comprehension about advanced business matters.
If you want to sell a company you must possess in-depth knowledge and information about acquisitions and mergers.
You should be crystal clear about what is at stake financially and what could be the economic disadvantages of selling your business.
Before you even think about making a decision to talk to a buyer to sell your business, it’s important that you have a crisp insight into the process and aftermath.
2) Your Company is Your Passion
A company is not created in days or weeks. It has a history of years and sometimes, even decades, behind its success.
This was a dream that you brought to life. Driven by your inner passion, you made it a reality.
You as an entrepreneur have given your valuable time and energy to build and grow this business. It is one of the most significant professional and personal accomplishments of your life.
After selling it, you might have all the money, but the passion that made you successful might not still be there.
A company that you nurtured and brought up like your own child, has now gone to someone else.
This type of psychological and emotional regret often takes over entrepreneurs once the reality of the sale dawns upon them.
You didn’t just sell your company, you sold your passion, and your purpose.
So, before making the final decision, give some thought to this aspect of the business sale.
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See How I Can Help You With Your Fundraising Efforts
3) Your Company Does Not Have a Competent Management Team
If you want to get the best returns out of your exit strategy, then you need to sell your business for maximum value.
A successful company sale would require you to attract good prospective buyers. Among many other things that buyers look out for in a new company is that they are getting a competent management team included in the package.
With a professionally proficient and skilled management team, your business must already be running smoothly and successfully.
This is what is crucial for the new buyers as well.
They do not always want to spend their valuable money and time on re-structuring your small business and looking out for a team to make it work.
Your company’s sale value will be significantly affected by the efficacy and strength of your existing team.
So, if you do not currently have a good management team that can run the affairs of your company (even if you are not there), then you probably shouldn’t be selling it at this point in time. Or you may benefit from recruiting a more experienced executive team for the next phase of growth.
4) You Do Not have Clarity of Future Prospects for the Business
As a business owner, you should be very clear about the future prospects of your company and its industry. If you are, it could be a smart idea to make the decision to sell your company.
If you and your management team do not know where your company is heading, and do not have any idea about the growth expectations, then you are surely not in a position to sell your company. At least not for the most possible.
Comprehending the existing and prospective economic conditions, market dynamics, and industrial growth will enable you to assess the future success of your company.
You will then be able to make a better decision, whether it is time to sell the company or not.
So, at this point, you must first consider and explicitly calculate how much you can gain from your existing investment. Compare the selling returns with the returns of continuing to run the business.
Do not let a confused future comprehension lead you to make the wrong decision.
At least get help in creating financial models and forecasts as a stand alone business, or the potential it has when merged with or acquired by a potential buyer.
5) Business Progress and Profitability Is Irregular
The value of a business grows if it offers higher returns and profitability to its owners. To make your business highly attractive to potential sellers and make them give you a good price for it, you must offer a company with sustainable cash flows. Ongoing stock value and attractiveness is going to rely a lot on maintaining consistent upward growth every quarter.
Existing profits and returns show the potential buyers that your company does not just promise future growth, but is also currently making money.
Having sustainable profitability also ensures that your entrepreneurial and startup projections were rightly estimated. It is proof that your vision has ultimately led to a successful company that makes money.
Most small business buyers in the world are interested in this aspect. They consider it to be an indicator of the company’s success.
Without a sustainable earning pattern, your company will be downgraded by the buyers who will offer less value for it.
So, if currently, your company is not providing a regular stable cash flow, it might not be a good time to put it up for sale.
Showing this progress is part of the storytelling too for raising from investors and if not done correctly it could push you towards a firesale. Keep in mind that in fundraising or selling your startup, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
6) The Workforce Is Not On Board with the Selling Decision
As an entrepreneur, you started this business, but as a team, you transformed into a success. No company can succeed without a professional team.
Business owners and their workforce spend years, and even decades, to make their companies successful.
Your employees are a key contributor to the growth and profitability.
Always look out for their consent and agreement before making the decision to sell. If you foresee strong resistance in the workforce against the acquisition or merger process, it is best to reconsider selling your business and work towards a mutually agreed solution. Or they may derail the transaction.
7) Confusion in Organizational Structure
A good company to buy is one that already has an effective structure in place. Many small businesses start as a sole proprietorship. They may have the stakes of family members and friends.
As the company grows, there is an addition of employees, managers, investors, creditors, shareholders, and assets.
In such scenarios, a company must have a proper organizational structure to enable it to run smoothly, attract more investment.
If you have a confused or incomplete structure or chart, offering your business as a lucrative product to buyers might be a problem.
A corporate structure should always be clear and crisp, no matter how big or small your company is.
So, before you consider putting your business up for sale, always streamline your organizational structure into a formal arrangement.
8) Inability to Pinpoint Value Proposition
A company is of value to a potential buyer, only if it assures it is going to provide them a significant market advantage.
Your company must be attracting lots of new customers and making existing customers come back for more. Though, if you do not know exactly what your business’s value proposition or competitive edge is, you won’t be able to successfully market it.
If a potential buyer cannot pinpoint your business’s prime competency, he or she might lose interest.
Even if they do buy the company, sustaining its profitability might not happen.
You should be able to rapidly and easily distinguish your company from others and explicitly understand why it is special.
It may be the location, the product mix, the price, the innovation, or any other competency.
So, if you are not clear about the company’s value proposition yourself, then you should not be selling it to others yet.
9) Incomplete or Inaccurate financials
The company’s financials are its biggest support while selling it. This is the first thing any investor or buyer would be interested in.
Even if your business is small, make sure you have all the financial statements and accounts in order. The inability to provide accurate current and past financial statements is a huge problem for any business.
For large companies, the financials should be professionally audited for superior reliability.
If you have no financial statements or inaccurate ones, it is better to reconsider your decision to sell your business at this point in time.
10) Temporary or Current Dip in Growth or Sales
Growth is one of the key factors that add value to your business proposition. As a business owner, you should be able to market your company as a financially and economically lucrative option for the buyers.
Potential buyers also lookout for a company that offers positive growth prospects and long term profitability opportunities.
If in the current scenario, your overall growth and profits are displaying a dip, then it may be wiser to let this phase pass and then sell your company after.
Sometimes giving it a little more time, changing strategies, expansion, or market growth might trigger a revolutionary increase in sales and profits.
Consider waiting until your company exhibits a stable financial situation before thinking about selling up. At least if you can.
These are just a few of the reasons why you should think twice about selling your business.
There are many more complications and issues that may arise and make it a not so great time to sell your company.
Ideally, a business owner or entrepreneur should ideally sell their company when you are enjoying profits, operating in a stable economy, and forecasting a future of positive growth ahead.
For startups and new ventures, the decision to sell a business can be more of a personal one than a corporate one. You, as an owner, must sit with a clear mind, take the help of professional advisors and then decide on your choice. They can help you optimize your business for sale, connect you with the right buyers, and patch up any of the above gaps. If it isn’t polished, but you need to exit for other reasons, then they can help you most of the situation as-is.
It cannot be an impulsive decision and you should always consider all the circumstances and prevalent conditions.
Sometimes, businesses are just reaching a turning point. There are instances when your business simply needs to redesign its strategy or lookout for new opportunities.
Slow sales or a temporary dip in profits does not mean you should lose heart and let it go.
To make the most out of your business selling process, you should wait until you can get the highest value for your invested time, money, and energies.
Finally, selling a business is not a one day affair. It is a long and strenuous process that requires lots of planning in advance. So, always be thoroughly prepared.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.