Should You Sell Your Business? 8 Signs It Might Be Time

Should you sell your business? This is a question every entrepreneur faces at some point during their career. Coming up with the right answer involves difficult decisions. If the company is scaling well and generating rich profits, it makes sense to continue running it.

Then again, if market conditions are uncertain and sales and profits are dropping, that might seem like a good time. You’d think about cutting your losses, liquidating the company, and diverting the funds toward setting up a new venture. An impending retirement can also be a deciding factor.

How would you work out the opportune time to sell your company? Your objective would be to exit with good profits to compensate for the time and sweat equity you invested. Financial considerations are also high on your list of priorities; to retire comfortably or invest in the next startup.

Each company is unique, as are the founder’s circumstances, so weigh your options carefully before accepting the next purchase offer. Here are some of the key factors that can influence your decision.

The Company is Performing Well. Should You Sell Your Business?

When a company is thriving with great valuations and successful fundraising, the last thing you’ll think about is an exit. However, as seasoned entrepreneurs will advise, the opportune time to exit is when the company has excellent future prospects.

Potential buyers are likely to assess its future scalability and profit-generation capabilities. You’ll factor in these metrics when valuing the company and determining a selling price. Your pitch will also depict a dedicated customer base, consistent revenue channels, low churn rates, and more.

As your M&A advisor will suggest, acquirers will likely examine the last three years of your financial statements. The company’s performance over the last three years and other non-financial factors influence their decision to make a bid. The team, brand value, market reputation, and credibility count.

Great metrics can start a bidding war and bring you competitive offers so you can accept the best price. You’ll take your time picking the right buyers who share your vision and will keep the company running.

You can also negotiate for the best exit terms that benefit employees, customers, and other stakeholders.

The Company Isn’t Performing Well

This one’s a no-brainer. If the company is struggling, it would make sense to cut your losses. You’d accept the next good bid that comes your way. Selling it to a more capable acquirer could raise its chances of survival. The company could benefit from expert management and an infusion of capital.

Instead of declaring bankruptcy, you’ll use the sale as a last-ditch effort to safeguard stakeholders’ interests and secure jobs. A sale could also ensure that you receive at least some returns from the business you built.

A good indicator is the difficulty in finding investors for the next funding round. If your company can’t make it through the due diligence process and investors are hesitant to offer you capital, consider that as a good indicator. It’s time to exit.

Keep in mind that storytelling is everything in fundraising. 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), which 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.

The Industry is Undergoing Drastic Changes

The business landscape in the 21st century is consistently evolving, with technology developing at breakneck speed. Companies that can seamlessly assimilate technology, automation, AI, and robotics will quickly overtake traditional businesses.

Those who can keep up with changing trends, customer preferences, and cutthroat competition will survive. If your company can pivot and adapt, and products can evolve to be futureproof, you’ll sustain the company. But, if you foresee that the products will soon become irrelevant, a sellout is advisable.

When scouting around for buyers, look for people who can transition and digitize your company to keep it functional. Welcome innovators and ideators who’ll maintain your timeless assets.

Yet another factor is regulatory changes. Climate change, pollution levels, and other issues have resulted in federal and state governments instituting new policies and laws. These rules can impact how companies do business. You may need to pivot the product portfolio or operating practices.

Companies that can easily make the transition and become sustainable will remain in business. Others may have to phase out. If you think upcoming regulations will impact the company’s bottom line, you might want to think about selling out. Cash in while you can still find buyers.

The Business is Growing Exceptionally Well

You did all the right things when laying the cornerstone of the company. You hired an excellent team with high-grade skill sets and instituted a great culture. The product portfolio is innovative, and the brand is poised to make rapid strides to build a market presence.

At this time, the company may have grown beyond the founder’s vision. It may require more expertise than you can provide, and the management is better equipped to handle the challenges and hurdles. The quickly growing clientele and demand need the company to expand its manufacturing abilities.

There also may be talk about taking the company to IPO and expanding nationwide or going global. If you clearly see that the brand has immense, untapped potential, handing the reins to capable people is the right way to go. Accepting a management buyout could well be the right strategy.

Other options include a corporate merger, where you sell the company to a large corporation within your vertical. When faced with the question: should you sell your business, the answer is: absolutely.

Cash in your investment by accepting the best bid you get. Staying on as a consultant to keep the company stable and running while transitioning out is also an option.

The Business is Self-Sustainable?

A self-sustaining business with excellent management that needs minimum supervision from the founder is a win for you. Now that it is functioning well and raking in profits, you can focus on new projects. The company has an excellent management team that is well-experienced and trained.

The customer base is diversified, with low customer acquisition costs and churn rates. The company has an established brand value that doesn’t need aggressive advertising. New products capture the market instantly thanks to customer confidence in the brand name.

The company has adequate assets to keep it functional over the long term. It will not need to invest any major capital expenditure for upgrades in its manufacturing capabilities. If you can check these factors off your checklist, it’s the right time to sell the company.

Many entrepreneurs are ready to sink their teeth into a new venture, and selling the established brand makes sense. If you have a new project that is taking up all your time and attention, focus on it.

Let the team take complete control of the existing company and continue to push it to new boundaries.

You’re Ready to Channel Your Energies into a New Company

Use your entrepreneurial talents to build a new company. If you’ve been developing a distinct product portfolio within the company, consider a breakaway division. Set it up independently with a new team, manufacturing facility, and other resources.

Working within an industry for an extended time gives entrepreneurs in-depth knowledge about how it works. Chances are that you’ve identified a new customer pain point you can address with a product. Or, you have ideas to branch out into an entirely different niche.

Developing new IP that can potentially overtake competitors quickly can also be a factor. You’ll want to nurture the concept and convert it into a market-ready product before competitors catch on.

Dedicating your entire time and attention to these ideas is only possible if you sell the current venture. Select buyers who have a similar understanding of the industry and can continue running it profitably.

You Get an Offer You Can’t Refuse

New companies with innovative ideas that are quickly capturing a significant market share attract corporate attention. Mega brands may offer to purchase the company that has products in high demand and untapped potential. If that happens, you’re doing all the right things.

If you get an offer you can’t refuse, and you’re thinking: should you sell your business? Well, you should! As a fast-upcoming brand, appreciate the bigger brand’s interest and negotiate for the best M&A deal. This is the right time to grab the offer, but also consider the option of a merger instead.

As the entrepreneur, if you think the company could benefit from your direction, refrain from a sale. You could structure the transaction so that you continue to operate with some autonomy. But you’ll also benefit from the backing of the mega-brand name, capital infusion, and other resources.

Alternatively, maintain a stake in the company so you continue to earn profits over a longer period. Or continue working as a consultant. The terms and conditions of the deal will depend on your vision for the future of the company you built.

You’re Ready to Retire or Need the Funds

Should you sell your company? The answer to this question also depends on the financial aspect. The optimal time to exit the business could result in significant monetary gain for you. With the assistance of the M&A advisor, you’ll sell for the highest amount possible with favorable terms and conditions.

The expert will assist in company valuation depending on macroeconomic trends, the overall current industry standards, and brand value. Of course, the company’s metrics will also influence the pricing. This money will provide you with financial stability if you intend to retire after the exit.

Getting a great price for the company influences the possibility of the sale. You’ll calculate the bank balance needed to maintain your current standard of living through your retirement years.

And, if you intend to invest the funds into a new business, you’ll want to get the maximum returns possible from selling the current company.

Entrepreneurs may also consider a sale for personal reasons like changes in their life situation. They may need to divert more time toward their families and friends, perhaps necessitating a relocation. Then again, health issues may become a concern, which is why they may need to step down.

The most crucial aspect of running a business is knowing how to value your company. This skill will come in handy when you’re fundraising or selling it to the highest bidder. Check out this video in which I have explained exactly out to execute the valuation.

Not Ready to Sell? How About a Partnership Opportunity?

If you’re not ready to sell your company, consider the possibility of a merger, which is more about pooling resources. If you can achieve successful integration, the resultant synergies bring about cost and resource efficiencies.

Entering into a strategic partnership with another company within the industry where you work could bring multiple benefits. Explore the possibility of vertical collaborations to enhance distribution or supply chains and streamline your business.

You can also partner with brands that provide complementary products and services and thus enter into symbiotic relationships. Strategies like these help expand your market presence and reach out to customers beyond geographical boundaries. You could also attract a customer base in other niches.

Mergers between competing companies offering similar products work well for both participants. Combining production processes results in economies of scale, leading to cheaper prices and happier customers.

If you have been facing setbacks and are wondering if you should sell your business, consider the option of a merger instead.

Should You Sell Your Business? Start Preparing for an Exit

If you’re starting to think about making an exit, start prepping even if you haven’t made the final decision. As expert M&A advisors recommend, the right time to prepare for an exit is when you start building the company.

Make sure the financials have complete clarity and you separate personal and company accounts. Get the necessary IP protection for the intangible assets and work out the ownership titles. The same rule applies to other fixed assets the company may own.

Get your legal team to work out exactly what the company owns and will be handed over to the buyer as part of the deal. Working out these issues will help you value the company more accurately.

The bottom line is that each company is unique, and the ultimate decision to exit depends on the founder. Trust your gut just as you trusted your instincts when building the company. That’s the right time to sell your business.

You may find our free library of business templates interesting as well. There, you will find every single template you will need when building and scaling your business completely for free. See it here.