Many entrepreneurs start their businesses with the illusion that it will be a quick path to riches. Unfortunately, with the rare exception, it isn’t. That is why it’s important that you understand why you’re running your business, and what you’re hoping to get from it.
Why did you start your business?
If you started it because you are passionate about the industry you’re in or that you’re excited by the prospect of running and growing a business, that’s enough of a “why” to keep you going past the early business-year struggles.
If, on the other hand, you decided to start a business because you’re looking to become rich, or for a quick mega million business sale, and that’s your sole motivating factor, then it might be a difficult road ahead.
It is important to remember that before you decide that it’s time to sell, think carefully about “why.” Scooping a few dollars might put a short-term smile on your face, but it doesn’t replace many of the things you’ll invariably miss, such as the energy of running a business and the feeling of significance of being its President.
Money can’t buy that.
Money also doesn’t buy happiness, so if you have enough money in the bank to retire now, you need to ask yourself why you’re still running in the rat race.
In addition to what I just explained, I have listed a few of the things you’re going to need to think about before you decide if it’s time to sell.
What will you do with your time, post-sale?
For starters, have you figured out what you’re going to do after you’ve sold your business? Do you have any hobbies? Maybe a volunteer organization that you want to work for? Perhaps travel? Or, would you like to go back to work, or maybe even start another company? You need to give this some serious thought.
Fortunately, there’s time between when you decide you want to sell and the actual sale itself, so you will have probably a year to contemplate what you’re going to do in your next life.
In my case, it took the better part of a year to figure out what exactly I wanted to do with my time, and even now, I’m still trying to figure it out. I did a lot of research and soul-searching, and although I had a sense of what I wanted to do, I wasn’t entirely sure how things would work out.
What I knew was that it was time for a change and time for a new challenge.
If you sell your company, will you need to go back to work? If you need to go back to work, you need to question whether now is the right time, especially if your company is profitable. Or, are you selling, hoping to cash out on the current business and use those proceeds to start another business?
If you’re selling with the plan to retire, and you don’t have enough wealth generated even after you sell the company, it probably makes sense to work for a few more years until you have enough saved so that you can retire comfortably.
Or, if you’re hoping for a windfall from the sale of your company, and you’re hoping to live off the proceeds of the deal, that also could be an option. It’s probably a good idea to speak with your accountant or financial advisor.
Do you have a succession plan for your business?
If you’re hoping to sell to a strategic buyer, then having a succession plan isn’t as important. If you’re hoping to sell to a financial buyer, private equity or venture capital, you’ll want to make sure you have a proper management team in place that can run the company successfully without you. If the business is going to collapse without you there, that will become apparent during the due diligence phase. If you don’t have proper succession in place, you’ll need to work on moving other senior managers into the roles to replace you eventually.
Passion or exhaustion
Most entrepreneurs start their business because they’re passionate not only about business, but the industry as well. As the company matures and grows, your role transitions from start-up do everything to the manager of staff, customer expectations, strategy, often issues unrelated to your industry and instead, dealing with business problems and putting out fires. The constant daily grind can wear you down rather quickly.
If your passion has waned and you’re finding it more difficult to get excited about growing your business, then now might be the time to consider selling. After all, if you’re not building your business and continually thinking about next steps, it could start declining, making it more difficult to sell. It is much easier to sell a company that’s on an upward trajectory.
Is your business and industry on the way in or out?
It’s easier to grow a business that’s in a growing industry rather than a declining one. If your niche is in the taxi industry, I can’t imagine how difficult business must be at the moment. The same goes for many other industries. And, although you don’t have a crystal ball and it’s difficult to tell what new trend or technology could threaten your business, you need to be extra vigilant about what upcoming trends might threaten your business and make it more difficult to sell. If you recognize the industry or technology shifting signals, now may be time to act.
If you’re in a financial position where you can afford to, or at an age where you need to sell, you should call an M&A advisor who can help you through the process. You usually want to get in touch with the M&A advisor at least two to three years before selling, to gather from him or her what housekeeping needs to be done in your business to get it ready for market. I was quite overwhelmed by the 150-line list of items of information that were required, so you should start doing some housekeeping now.
Unfortunately, many entrepreneurs don’t take the time to contemplate what they want from their business, whether it’s regarding profits, long-term business growth, or more importantly, lifestyle. Most are caught on the entrepreneur merry-go-round, dealing with business issues, family, staff, banks and so on, and find it difficult even to plan this year’s strategy, let alone figure out whether it’s time to sell.
Does that sound like you? Are you so caught up in the day-to-day running of your business that you haven’t even contemplated selling? If so, and you love what you’re doing, then keep going. If not, and your passion is starting to wane, then maybe now is the time to call an M&A advisor, have your first meeting and figure out what’s involved in getting your business ready for sale.
If you’re doing it just for the money, you might want to give some consideration to how much of your identity is wrapped up in the business and what life post-sale might be like.