Cross NW - Cross Northwest, Inc | 3 Signs It’s Time to Sell
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3 Signs It’s Time to Sell

3 Signs It’s Time to Sell

How to Get the Most Out of Selling Your Business

 

Leaving on a High Note: 3 Signs It’s Time to Sell Your Business

We’ve never heard a business owner say they sold their business too soon. All too often, burnt out entrepreneurs wish that they’d sold before it became a necessity. When it comes to selling your company, you want to get out while the getting’s good — when you can get the most for your efforts and before you’ve lost your passion and depleted your resources.

 

It’s tricky to pull out when business is booming, but the perfect window to sell can be more fleeting than you think. If you know how to read the signs, you can do right by your business, your employees and your bank account. Here are three glaring indicators that now is an optimum time to sell.

 

  1. Your Company is Ready

There’s a direct correlation between the value of a business and how well it is managed. The more proverbial ducks you have in a row, the more attractive your company will be to potential buyers. Smooth running operations always sell. If you’re trying to determine how ready your business is, look for these tell-tale signs that your company is ready to stand on its own.

  • At least three years of profit: Part of due diligence for most buyers is a projection model based on the past three years of performance. A positive upward trend in financials bodes well for future growth, and gives buyers confidence that margins will continue to grow.
  • A strong customer base: A good track record for attracting and retaining customers is very attractive. Knowing that the business comes with a sustainable base of loyal customers makes the buyer’s job easier and quells concerns about continuing the positive momentum you’ve established.
  • Your management team can function without you: If you’re afraid that your key staff would fall apart if you stepped away, it’s probably not the right time to exit. However, if your management team has a solid grasp on the day-to-day functions of the business, and can keep things running — and growing — in your absence, they will likely be able to withstand the transition of a sale with minimal disruption to overall operations.
  • Booming growth: Sometimes a business grows beyond the current owner’s capacity to effectively manage. If your company is outgrowing you, start courting buyers before things get too far out of hand.

 

  1. The External Market Is Favorable

Whether you like it or not, there are factors outside your control that impact whether or not it’s a good time to sell your business. Outside influences can be frustrating, especially when you’re used to calling the shots. But if these elements align with the things you do have control over (your business readiness and willingness to let go), you’d be remiss if you didn’t consider selling.

  • Low interest rates: When interest rates rise, so does the cost of capital, which can lower the value of your business. Interest rates are a significant consideration for buyers that use loans to make acquisitions. They will need to use earnings to pay the interest on any loans, which greatly impacts when and how someone can afford to buy a business. The higher the interest rates, the less likely a buyer is to offer top dollar.
  • Stable or rising stock market: Higher share prices make it easier for buyers to acquire new businesses. Many corporate buyers use stock, instead of cash, to acquire companies. That means the better the stock market is doing, the less shares it will cost for the acquisition, which preserves a larger percentage of ownership for the corporate buyer.
  • Low capital gains rates: While low interest rates are good for buyers, low capital gains rates are great for the seller. Bottom line, it means you’ll get to keep more money from the sale of the business.

 

  1. You are Ready

The emotional implications of selling a business probably the most difficult to navigate. You’ve poured your heart and soul into your company and it’s hard to imagine it in someone else’s hands. You need to make sure that you are prepared to let go and reap the benefits of your hard work before courting potential buyers.

  • It’s time for a change: Many entrepreneurs love the thrill of a startup, and once everything is up and running they become restless. If you’ve already got your eye (and mind) on the next big idea, it’s a great time to exit. You can enjoy the success of this venture and re-invest in the next project while you still have the excitement it takes to start over.
  • You’re ready to retire: One of the best perks of owning your own company is that you might be able to retire well before the official retirement age. Whether this was your plan from the beginning or not, if it’s possible to retire and focus your energies on family or causes that matter to you, why not?
  • Exhaustion has overtaken passion: No matter how much you love your business, building and running a company can take a toll. When you wake up in the morning and feel tired instead of inspired, it might be time to make a change. Burnout happens to the best of us, and it can be the wakeup call we need to move on.

 

Selling a business is never an easy decision, but it should always be on your mind. As a business owner, you should always be looking for a way to exit your investment. Not because you’re unsuccessful or struggling, but because selling high is a smart business decision — and often the only way for you to reap the full return on all the blood, sweat and tears you’ve put into building a successful company.