In Silicon Valley, business acquisition is commonplace - and the sums involved can be astronomical. In 2013, Yahoo bought microblogging platform Tumblr for over $1 billion, and Facebook recently acquired Oculus VR for a staggering $2 billion. Most company takeovers are far more modest. However, the decision to sell can be difficult to make, regardless of the size of your business.
You may want to sell your business for many reasons. Two of the most common are:
It’s highly unwise to wait until you’re too busy or ill to run a company. Selling a business can take up to 2 years - you’ll need a considerable amount of energy if you want to negotiate the best deal.
It’s also inadvisable to wait until your business is in decline. Business owners often wait for a miracle to save them when profits are decreasing, during which time the company can haemorrhage money and lose value.
The key to getting the best price for your business is to be proactive - never wait until the company is in trouble. However, money is only half of the story - your personal life should also influence the decision to sell. Here are some of the best personal reasons for selling your business:
Not every business sale is provoked by personal change. Some entrepreneurs are guided by profit, choosing to sell when a lucrative deal can be made. If your aim is to make as large a profit as possible, you should pay close attention to the lifecycle of your company. Each business goes through a certain number of stages of growth and development, and these can seriously affect the value of your company.
It’s virtually impossible to sell a business at this stage. You have a fledgling company with no existing customer base, and potentially no viable product. An estimated 80% of businesses never make it past the startup stage, so investors aren’t willing to take the risk.
You’ve survived the dangers of the startup stage, and have demonstrated the viability of your business model. However, a lot of work still needs to be done - your customer base will still be small, and any profit you make will be modest. It’s rare - but not unheard of - for businesses to be bought out at this stage.
You’re starting to reap the rewards of your initial hard work. The business is making a decent profit, it’s seeing considerable growth year-on-year, and you have an established and loyal customer base. This is often the most profitable time to sell your business - investors are looking for successful companies which will continue to make money with minimal input.
Mature companies are also relatively profitable to sell. Investors are looking for further growth potential - often achieved by trimming the inefficient areas of the business. If your company has matured, keep a watchful eye on the market and your competitors - you need to sell before profits start to decline.
It’s still possible to sell a business which is in decline - some investors specialise in turning failing companies around. However, you will have a much smaller pool of potential buyers to negotiate with, and your business will be far less valuable than it once was.
The growth stage isn’t the only factor affecting the value of your business - wider economic issues can dramatically alter the asking price:
There are certain hallmarks which savvy investors will look for, regardless of the state of the economy. If you’re seeking to make a large profit, it’s wise to build up some of these assets before you attempt to sell your business:
Deciding when to sell a business is rarely easy. However, before you start the process, you should find out how much your company is worth. Always seek advice from a professional, as it’s easy to under or over-value assets.
Matt Everard is the Managing Director of Barrington Freight, a logistics company with decades of experience in the shipping industry.