Starting a business is an exciting and rewarding venture. Still, no matter how much you love your venture, sometimes you decide to part ways and sell. Whether the reason is personal, financial, or strategic, business owners and entrepreneurs — selling can be an exciting and important step. It’s vital to approach it carefully.
This guide walks you through four key signs that it could be time to sell your business. Keep these in mind and see if the timing aligns with your goals (and how to hopefully get the best outcome).
1. Favorable Market Conditions
Market conditions are constantly changing, thanks to trends and consumer demand. One sweet spot to aim for is when the market is stable and the demand for your products and services continues to rise.
Timing also includes economic factors like inflation, interest rates, and taxes, which are more difficult to predict. That’s why it’s important to stay on top of emerging industry trends to determine if conditions are ideal.
One way to determine if the conditions are favorable is by monitoring Gross Domestic Product (GDP) growth. A higher GDP typically indicates a healthy economy, making it ideal to sell your business. Stay updated on GDP and financial trends by reviewing economic reports from sources like the Bureau of Economic Analysis.
Rising stock market performance is another indicator of increasing investor confidence in your business. Use stock market tools (like Google Finance) to track stock market prices that could determine demand for companies in your industry.
Another way to assess the market and your company’s value is by conducting technical and fundamental analysis.
- Technical analysis is more often associated with financial markets than business sales. It involves factors like price patterns, market trends, and buyer sentiment to determine when is the best time to sell a business. While technical analysis applies more to investments in stocks, not directly to selling a business, it can still serve as an important metric when looking to sell an organization.
- Meanwhile, fundamental analysis determines value by reviewing financial reports, industry trends, and competitive advantage to determine its growth potential. It’s more suited for long-term investments.
2. Strong Business Performance
If you’ve reached your financial goals and even surpassed them, now might be a good time to take advantage and boost your valuation.
Selling at financial peaks helps ensure companies thrive and continue to make money. This also helps ensure you walk away with the highest profit (which could help fund other opportunities). You want to strike while the iron is hot — waiting any longer to sell could put the business at risk of lowering its value. If selling aligns with your other personal and professional goals, this may be the time for you.
One way to measure the performance of a business is by looking at three ratios: profitability, liquidity, and leverage.
Profitability
Measure profitability by computing the net profit margin, which is the remaining profit after taking into account all overhead costs, including tax and interest. (Higher profit margins are a good sign that a business is doing well.) Simply divide the net profit by total sales and multiply that by 100.
Liquidity
Liquidity refers to how easy it is to convert assets (like stocks or property) into cash to pay debts or liabilities. Compute the current ratio by dividing the company’s assets by its current liabilities. An ideal current ratio is between 1.2 to 2.
Leverage
Financial leverage refers to borrowing capital to fund operations and scale the business. It measures the amount sourced compared to the equity given in company ownership (shares). This is measured by the debt-to-equity ratio, which can be computed by dividing the total liabilities by the total shareholders’ equity.
Tip: Gauging Customer Satisfaction
Of course, business performance isn’t just determined by finances. It also helps to gauge customer satisfaction and reception via surveys, emails, or reviews to determine success.
Tip: Benchmarking Data
You can also try benchmarking to see how you compare against your competitors. Gather insight into your competitors by reviewing industry reports and market research. Look for companies that offer the same or similar products and target the same audience.
Collect benchmarking data to determine both your and your competitors’ performance. This can include financial reports, customer feedback, or employee performance data. You can incorporate a SWOT analysis as well to see which areas you could improve on.
3. You’ve Outgrown Your Business (Or Vice Versa)
There may come a time when a business owner faces burnout and perhaps finds it nearly impossible to scale the company any higher. Or maybe they’ve outgrown their business and find themselves unmotivated to take on new challenges and opportunities.
Either way, these could be two telltale signs that you’ve taken the company as far as it can go; this may be a blessing in disguise.
When selling a company to someone else, you’re bringing in someone with the experience and resources to breathe new life into it. Ideally, they will implement innovative growth strategies while you take on new opportunities and pursue things outside of the business.
4. Finding the Right Buyer
A thriving business often attracts potential buyers and investors, even if the company isn’t for sale. If you meet a buyer who presents you with the best terms possible, that could be a good sign that your business is ready to sell.
One of the best types of buyers is one whose values and reasons for buying the company align with your reason to sell it. There are many different criteria to consider when choosing a buyer, such as:
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Ease of Negotiation:
Which buyer will make the transaction and transition process easier and more convenient?
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Terms of Purchase:
Who provides the best purchase price? Do their payment terms align with your goals post-purchase?
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Buyer Reputation:
Does this buyer have experience with other companies? Are they a good cultural fit for the company, its employees, and stakeholders?
Final Thoughts
Whether you’re selling a business in Houston, TX or beyond, this process involves careful consideration, all while making big, bold moves.
Monitoring market conditions, assessing your business’s performance, recognizing when you’ve outgrown your company, and finding the right buyer are all part of setting the stage for a successful sale.
Aligning the above factors with your personal and professional goals is part of making well-informed decisions, maximizing the value of an organization, and laying the groundwork for your future endeavors.
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