THERE WILL INEVITABLY come a time when you’re faced with the decision of whether you should sell your business. This will be one of the most intense and difficult times you will face. Whether you’re a sole proprietor or affiliated with partners, it will be a challenging and emotional decision. To that end, let’s examine two questions. First, should you sell your business? And second, when is the best time to sell?
When deciding whether to sell your business, perhaps the most important thing to consider is the current value of your company today. If you’ve built a business with substantial value, that could make the decision easier. Substantial value includes a track record of positive net income, strong cash flow management, sales growth, a solid customer base, and other favorable metrics. On the contrary, if you’re struggling in some of these areas, it may preclude you from getting the value you envision out of the sale of your company, at least until you’re able to properly address your problem areas.
The succession plan you may have in mind is another dynamic in the decision to sell. Many small businesses have operated over the years on the assumption that a member of the family (typically already involved in the business) will eventually take over and move the company forward on a successful path for the next several decades. Unfortunately, that assumption often doesn’t work out and the reasoning is simple.Many of us built our businesses from rather small companies into larger successful companies. This took time and allowed us to make mistakes along the way. In hindsight, these mistakes made relatively small financial impacts because we were building small businesses. Now, years later, we expect the next generation to step in and figure out how to run multimillion-dollar, complex organizations without the luxury of making those same small mistakes. It turns out, they can be very large, expensive, and damaging mistakes.
To be clear, I’m in no way saying you should never plan on passing your company along to your next generation. It may work out just fine, but it’s the exception rather than the rule. If you’re uncomfortable with the next generation of management, whether they’re family or not, that could drive your decision to sell your business.
The second question you’ll grapple with is the timing of the sale of your company. Of course there’s no perfect answer here, but the best road map to help your decision may again relate to the financial and operational strength of your business. If your company is operating from a position of strength and success, then it might be the right time.One last item to consider: Do not underestimate the personal impact the sale of your business will have on you, your partners, and your family. You may have spent the overwhelming majority of your career building your business. You need to be prepared mentally and emotionally to sell your business and walk away from something in which you are heavily invested. If you’re not ready to make that rather dramatic shift in your lifestyle, then it may not be the time to sell.
After all is considered, if you do decide to sell your company, then you’re fortunate enough to be operating in a business climate unlike any other in our history. There are trillions of dollars in the investment markets paying excellent values for strong companies. My hope is you find success and happiness in this challenging, yet ultimately rewarding event.
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