[This article was written by Blake Taylor.]
For most business owners and entrepreneurs, a major goal or even the primary goal of establishing a small company is to make a significant profit. Eventually, they hope to get full value for the sweat equity and funds they’ve invested. Then, they can execute an exit plan that will set them up for a comfortable retirement. Many startup owners may opt to sell earlier than they originally expected. This happens for different reasons. For instance, some follow a new concept that requires their full attention, and the sale of the existing company funds the venture. Others have family factors, health issues, or lack the motivation to continue building the organization.
If you’ve been considering selling your business, know that just 20% to 30% of small businesses put up for sale find buyers. Chances are good that when you make the decision to invite bids, you’ll be unable to secure a viable offer. However, there are good reasons why you should wait before you accept a deal. Here are a few additional factors that might cause you to delay your sale.
- You Don’t Have an Exit Strategy In Place
Statistics suggest that at least 65% of entrepreneurs have no clear exit strategy in mind. If you wish to make a significant profit and ensure that your legacy is protected, you’ll need to find a buyer who appreciates the time and effort that you’ve invested into building the business. Ensuring that the company will continue to run and prosper even after you quit is essential. For this reason, you’ll train employees to take over the management of the company even when you’re not directing operations. Delay selling the company until you have a thorough game plan in place.
2. You Haven’t Talked to a Merger & Acquisitions Expert
Around 70% of startup owners have never drawn up estimates about the after-tax income they’ll need to retire comfortably. Furthermore, you’ll need to get the company evaluated to understand its true value. Get in touch with an expert trained in mergers and acquisitions to advise you on how to sell a business quickly. Business brokers help you get in touch with the right buyer and share valuable insight on market conditions that aid in selling your business. Chances are that they’ll be able to advise you on whether to wait for the market to improve before you invite bids.
3. You Don’t Have the Financials and Documentation Ready
Buyers interested in purchasing your business need to ensure that the company is stable and will continue to generate profits. When discussing the deal, they’ll request for detailed financials like profit and loss statements, balance sheets, and information about any loans that you’re in the process of repaying. To get a clear picture, they’ll ask you to provide documents dating back at least five to seven years, if your business is that old. Even if you’ve been working with a qualified CPA, it helps to have your own knowledge. Take a CFP practice test to improve your understanding of how financing works. Also, make sure that the paperwork details the salary you’ve paid yourself, taxes paid, and any other IRS dues.
4. You Haven’t Found the Right Buyer
Having worked hard to build the company from the ground up, you’ll want to take the time to vet the buyer carefully before finalizing the sale. Since you have detailed knowledge of how the industry works, the startup could be generating rich returns under your leadership. If the new owners are not familiar with the niche, lack management qualities, or fall short on the spirit of innovation, they might be unable to run the business. Prevent lackluster returns by checking the buyers’ expertise in the industry.
5. You’re Unsure About the Right Price
Many entrepreneurs are unsure about the company’s optimum value and end up quoting a price that is either too high or too low. Finding a buyer will be tough if the price is unrealistically high. And, selling for a lower price is simply bad business sense. If your goal is to continue earning a percentage of the profits even after the sale, you might be left with nothing if the company is unable to generate sales moving forward.
Making the decision to sell your company can be a tough one. But, if this is something you absolutely need to do, take the time to evaluate all the contributing factors, and then, make the right decision for the future of your precious startup.
Blake Taylor is the Managing Director of Synergy Business Brokers. Blake has over 16 years of experience as a Business Broker and M&A Advisor, guiding clients on how to sell your company. In his 30 years of business experience, he has negotiated and closed hundreds of large deals, employing a win/win negotiating style that benefits both parties.