Is it time to sell your business? There is a beginning and an end to everything and businesses are no exception. Even humans who are in charge of business do have a lifespan. Although trans-generational businesses exist, it is not a guarantee it will continue to exist in the future. There comes a time when the right thing to do is to move on. The most graceful thing to do is to sell it off.
For a fact, it is always good to bow out when the ovation is loudest. In fact, the difference between leaving the business scene gloriously and stumbling your way out is recognizing the signs that it’s time to sell. That is why it is important to identify the right time to sell off your business. Many people find this a challenge. Therefore, they find themselves holding on to their business when they should actually sell-off.
So, how exactly are you to know if it is time to sell your business? Here are some pointers to look out for -.
- Growing risk
- Increased business value
- Personal reasons
- Retirement
- Failing health
Growing risk
Basically, there is a measure of risk attached to every business. This contributes to the failure of many small businesses all over the world (even in countries with a business-enabling environment) within the first two years of operation.
If it happens that you have been getting it right for a while and the tide turns against you unexpectedly. It may be time to sell and move on. This is subject to a personal evaluation of the industry and your unique circumstance. If you are walking a figurative tightrope that might not sustain market pressure for a long time, it is best you sell out to whoever is interested.
Increased Business Value
Over time, trends and events could increase the value of an industry. In clearer terms, if you have operated a small business that fills a particular space, you have a fair chance of making a decent profit by selling to a larger company that desires to acquire your product, customers, and brand name.
For example, an increase in the volume of demand for remote working and conference meetings increased the value of ZOOM as a business entity earlier in the year 2020 due to the global pandemic. That would have been a good time to cash in on the app if they didn’t have better plans for it in the future. All things being equal, the acquisition process of this form usually necessitates your involvement for a set amount of time before you leave so as to ensure a smooth business transition.
Personal reasons
The way life goes sometimes might take its toll on your business. It could be that you realize you spend too much time trying to take adequate care of your business at the expense of family responsibilities. This or any other personal situation might lead you to decide that selling off your business is the solution. You would agree that running a business can be stressful and time-consuming. To this end, it is not out of place to want some time to slow down and relax with family and friends, especially if you are aging.
Retirement
Sometimes, the reason why you have to sell that business has nothing to do with the business. Rather, it is for your own good. This is the case when it becomes imminent that you need to retire.
As you age and step into the retirement age group, there are a number of conditions that validate the sale of your business as the right step for you to take. If the money realized from the sale of your business is enough to serve as your retirement plan, it makes sense to sell off, rather than having to go through the rigor of running it down to old age.
While some people might choose to opt for the continued running of the business, it is safe to say that a sale would bring about the provision of capital that could be invested wisely. if you would be doing this, make sure there is a concrete legal backing for it, and the terms and conditions that apply make provision for the safety of your funds.
Failing health
This is a sad one. However, it is the reality for many today. If it happens that you are constantly on one medication or the other in other to stabilize your health, there is usually a need for a change in lifestyle.
Business owners and entrepreneurs who are in this situation usually do not enjoy running the enterprise any longer. It takes its toll on their attitude to work. Subsequently, they get to feel stress instead of excitement when a new challenge crops up. At this point, it makes sense to sell off the business and focus on maintaining good health, especially if the proceeds of the sale are enough to take the business owner through his basic needs.
That being said, it is vital that you sell right if you have been able to establish that selling off the business is what is right for you. it would not be so good to settle for less in the sale of an enterprise you have worked hard to build over the years. So, how much should you sell your business?
How much should you sell your business?
It would be totally unrealistic and out of place to set a general price for the sale of all businesses. Rather, this should be a function of proper valuation. The valuation of the buyer is likely to contrast with yours. However, you can actually get a good buy even if all you run is a small business. This happens when the buyer sees your business beyond your tradable assets.
In any case, it’s important that your business is always set for a potential sale and one major criterion for this is to know its valuation at any given time Even if you don’t want to sell your business, it’s a good idea to know what your business is worth always.
There are a lot of methods for valuing a business, but for small business sizes, the most appropriate is using assets, liabilities, and future cash flows. The business’s value is incredibly important information for any business owner considering selling their business. Going into a negotiation without a prior understanding of what your business is worth puts you in a position to lose money.
Here are some factors that should be considered when you are assessing the worth of your business.
- Fixed Assets
- Movable Assets
- Liabilities
- Cash Flow and Income
- Business Sector
Fixed Assets
These include things like machinery, property, and inventory. It’s easy to calculate the value of tangible assets as they are physical properties that contribute in one way or the other to the smooth running of your business. For property and machinery, ideally, you should use the for sale or liquidation value, however, for negotiation purposes, I’ll suggest you start with the market value with the exception of machinery which requires you to exclude the depreciation since the time of purchase and use.
Movable Assets
These are assets that cannot be seen physically or touched. They include brand recognition, trademarks, etc. Although the measurement or assessment of these assets can be dicey, they add terrific value to a business. You could consider your customer list as an asset. Many small business owners make the mistake of not having a customer relationship management (CRM) tool that stores their customers’ information. It’s important to have this information in order to continue to sell to these customers over time.
Do you have a name that people consider as valuable for the market you’re in? This could be valuable to a potential buyer. Proper valuation for brand names and trademarks is quite difficult to ascertain but if I were you, it would be anywhere between 2% – 10% of my total asset value.
Liabilities
Liabilities are simply what you owe. It is the representation of all the debts affiliated with your business. Liabilities are not always a bad thing as far as you have a good credit history, favorable credit terms, and the company’s cash flows can pay for the loan. Your liabilities have to be deducted from your assets and shareholder’s capital in order to derive your business net worth, which is never the same as the valuation price.
Cash Flow and Income
In Nigeria, any buyer that would consider purchasing your business is concerned about the future cash flows that could be derived from it. This means that the buyer would consider your margins, cost of running the business, the financial business model with respect to whether you sell on credit or it’s mostly cash sales, and how much would be required to inject into the business to take it to the next stage of growth. If your business is cash flow positive and you have a solid operating income, you may end up with a good offer that is irresistible.
Business Sector
This is an honest assessment of where you are in your business as well as the future prospects of your industry. If you are a serviced based business with a good clientele and don’t need a lot of capital to run the business but still manage to earn over 50% margins year on year, trust me, that’s a very good business for any potential investor.
This is not necessarily the same story for a business with a 10% margin that is selling on credit and has a long line of expenses to pay month on month. The business may end up going bankrupt at some point and this is likely going to worry investors. Investors would likely value a tech company differently as against a brick and mortar company because of its future prospects and ability to grow faster even if it’s current financials are somewhat similar on paper.
Conclusion
Selling off your business will likely be an emotional decision for you. Even if you are cashing out big, the thought of parting with an enterprise you have built over time can be nostalgic. However, you should also reflect on the positives that came while it lasted and move forward to the next phase of life, which could be another business line or other dreams that you’ll like to conquer.
Going further, knowing what your business possesses is a big plus as you go through the process of business valuation. By looking at both tangible, intangible assets and other associated variables, you get to learn what makes your business valuable, how valuable those assets are, and what are some drawbacks that devalue your business.
Therefore, take steps to know your business’s worth and revalue your current business model even if you are not planning to sell it off. Do the analysis at regular intervals, and conduct a professional business evaluation to help you get the most accurate valuation possible.