Why, When and How to Sell your Business.
Every business only has two destinations: it closes, or you successfully sell it. Globally, however, 94.6% of all businesses that begin, never get sold. This is tragic for business owners, because they pour their life, energy, and attention into a building a business that should serve them and offer them financial security. But why would you sell your business, and when is the right time to do so? On The Money Show with Bruce Whitfield, Pavlo Phitidis outlined a plan for how to sell your business:
Why do you do what you do?
Starting and building a business isn’t something you enter lightly. Adopting an entrepreneurial approach to your business, and building an asset of value, with the view to selling it at some point, is essential. If you’re concerned as a business owner that you need to reconfigure the way you’ve built your business, so that you can look towards selling it and securing your future, now’s the time to return to the basics of your business and remember why you do what you do. You may have discovered an opportunity that was the catalyst for building your business, or you opted to create a business out of necessity. Either way, the passion you felt for your business in the beginning serves as a guide for helping you ready your business for sale and plan your exit strategy, but it cannot be the sole shaping force. If you began your business out of necessity, it forces you to fully engage with your business, digging deep into it – I often find that the most driven business owners are indeed the ones whose drive was borne out of necessity. Passion, in and of itself, is not enough to build (and then sell) a successful business. You may be deeply passionate about a sector or industry, or you may feel inspired by the momentum within building a business, but passion alone is not a sustainable business building tool. It may help you to drive momentum within your business, but it can also make you blinkered. Passion may get you started, but passion combined with purpose, will enable you to build an asset of value. Your business should be built to sell, rather than built in the hope of one day selling it. Plan your exit strategy at the beginning, and you’ll be relatively assured of a successful sale, when the time is right.
When do you sell?
The right time to sell your business doesn’t just come around by accident. There are several variables that drive that process, and they often influence your plan for how to sell your business. Because your business is an extension of yourself, changes in your world view, health, energy levels, attitude, or other circumstances, can directly influence your decision to sell your business. Factors somewhat external to your business can also directly influence your plan for how to sell your business. Changes in your sector or industry, or shifting trends in technology and legislation, can lead you towards wanting to end the cycle of breaking and rebuilding your business to stay aligned with your customers’ changing needs. Moreover, the lifecycle of your business plays an important role in helping you choose the right time, and how, to sell your business. As your business grows, so too does its value change and grow. Your business’ lifecycle is not driven by how long it’s been in operation – some businesses reach their peak early on, while others take longer to mature: the peak of your business’ life cycle is always a good time to sell. The lifecycle stages can be influenced by the size of your business, the arrival of new competitors, a shifting customer base, or new buyers taking interest in your business. An interested corporate buyer will have a completely different budget and purpose for wanting to buy your business, when compared with a private buyer. Particularly, the size of your business will influence buyers’ interest in, and ability to, buy your business.
How to sell your business
As a business owner, you should always be building an asset of value, enabling you to ensure that your business can be sold at any point. Make it a habit to investigate and consider what you want for your business, and what you need to extract from it. For the former, consider what you’re still equipped to give to it, and for the latter, undertake a financial valuation or assessment of your business, at least once a year. Consider how much money you would need to maintain your lifestyle once you sell your business and to cover your retirement, and then assess how much money you would like to make from the sale of your business. Those two figures will help you to define how much you would like to sell your business for, and how close you are to achieving that goal. Thereafter, consider the current financial valuation of your business, including the three levers of valuation, each of which can be built into your business:
- What makes you different to your competitors?
- How long into the future your business can continue to grow?
- What seam of free cash flow can your business generate?
Once you’ve built those levels of valuation into your business, and been able to assess your financial objectives, you’ll be equipped to build your exit strategy, and define how to sell your business.
Are you considering how to sell your business? Aurik can help. Let’s start talking, and we’ll help you build an asset of value.