If you’re considering the question, it might be a sign.
There’s a reason people say they’re married to their businesses. Owning and operating a company takes commitment, passion, patience, and a willingness to compromise. It’s a life riddled with ups and downs: moments of exuberance and bitter conflicts, shared struggles and triumphs, doubts and reassurances.
As with any long-term relationship, a person’s attachment to their business may deepen or diminish over time. But if starting and maintaining a business demands profound emotional effort, leaving one is even more fraught. Whether you know in your heart that it’s time to move on, or are only starting to think about it, breaking up is hard to do.
And that’s where the comparison ends, because while you can’t sell your spouse, there’s nothing wrong with selling your business—in fact, it could be your best exit strategy, and perhaps something you planned from the very beginning. Whatever the case, the world of mergers and acquisitions (M&A) presents lucrative opportunities for owners and entrepreneurs prepared to sell.
But first, you’ll need to determine if you’re ready. The following seven questions are meant to help you build a foundation for the monumental undertaking of selling a business. There’s no way we could cover every motivating factor, but these considerations should give you a sense of what you need to figure out for yourself and your business before you jump into M&A.
Take Inventory of Your Business Before You Sell
What’s the state of your team?
Could your business continue without you? Who among your employees, if anyone, would be ready to step into a leadership role? If there’s an obvious candidate, an internal change in ownership may be a better option than a sale to an external party. Otherwise, identify any team members who could help you estimate the value of the company, evaluate opportunities and negotiate with possible buyers, draft and organize piles of paperwork, and buoy morale during a transition. You’ll eventually need an accountant, an attorney, and possibly an M&A advisor—more on that later.
Have you considered your relationships with suppliers, clients, and investors?
What do your customers, partners, and stakeholders stand to gain from a sale? What do they stand to lose? Any merger or acquisition needs to be in line with the intentions of your investors and board of directors. Pursue a sale only when it’s the right decision for all involved. It’s hard enough to negotiate with a buyer, let alone your internal administration.
Key takeaway: The decision to sell should benefit your business’s stakeholders and customers, as it will involve them as much as it involves you.
Uncover Your Business’s Value Before You Sell
Do you understand the market?
Like the stock market, the M&A landscape waxes and wanes in concert with larger economic forces, sometimes in your favor. Look at your competitors and similar-sized companies in your sector:
How many have been sold or acquired over the last few years?
How many are acquiring smaller companies?
The same trends that make your business an attractive prospect to a buyer may also compel you to sell as quickly as possible, before market forces move in the other direction. If you run a startup, for instance, you may want to exit before the next wave of disruption emerges. Ideally, when you decide to sell your company, you should have a solid book of business and a lot to offer to a buyer—with plenty of time to figure out a strategy.
Have you figured out your sales strategy?
Assuming you’re not already racing against the clock, you’ll need to set aside some time—weeks, months, perhaps even a year—to outline a plan of action. What kind of buyer are you looking for? How will you keep your business going in the interim?
In order to effectively sell and market your company, you’ll need to develop it the way you would a product or service: make it as appealing as possible, eliminate all unnecessary costs and liabilities, define your target audience, and be ready to devote the next several months to nothing but selling.
Can you nail down your valuation and value proposition?
Before embarking into the M&A market, you’ll need to come up with an asking price. Once you do, ask yourself whether you can justify that price. If not, you’ll either need to adjust your estimation or alter your business practices. Think like a buyer and consider what features of your company would make it too good to pass up.
It’s not only a question of revenue and business model, but also your customer lists, in-house talent, and intellectual property. If you aren’t sure how you should price your company, circle back to your career objectives and decide how much money you’ll need for retirement or the next stage in your career.
Key takeaway: Know what you’re selling, who you intend to sell it to, and how much you’ll be asking for—and get ready to justify it.
Make Time for Self-reflection Before You Sell
Have you checked in with yourself?
How are you feeling? Do you arrive at work each day excited to tackle new challenges or are you feeling irritable, worn out, and dispirited? Does the job still motivate you, or have you lost touch with your skills and interests? Can you imagine running your business for another five, 10, or 20 years?
Pay attention to your changes in mood and outlook over time. There’s a big difference between temporary exhaustion and chronic burnout, and the latter is a definite signal it’s time to sell.
Have you thought about your career objectives?
Unless you planned on operating your business indefinitely, you should have some idea about the next stage of your career. Following your instinct to sell, reflect on the current state of your position and company as circumstances compare to your mental timeline:
Are you ahead of schedule? Behind schedule? Right on time?
Depending on your age and cost of living, the decision to sell could precipitate your retirement, provide you with enough money to take a well-deserved vacation, or launch you straight into your next venture.
Key takeaway: Make sure the decision to sell your business aligns with and is timed with your personal goals, and that it can provide you with enough revenue to meet those goals.
If you’ve read through this article and feel confident about selling your business, great! But you’re not quite ready yet.
Next, you’ll need to summon your team. And since M&A is a topic too big and complex for one blog post, we’re splitting this one into three parts. In an upcoming installment, we’ll explore who you need on your team, with a particular focus on why it’s absolutely crucial to have the right accounting solution on your side.