To sell or not to sell – is that the question?
People notin the know (often accountants or corporate financiers – with apologies to those friends of mine in those professions who know better) think that entrepreneurs start businesses in order to make plenty of money.
Well I don’t know many successful entrepreneurs who started with that as their prime goal: sure they wanted to make a decent living, but the real goal was more often freedom, independence, results based on their own effort and skills, and a desire to provide customers with a better product or service than others were doing.
So when you’ve built your business up into something that resembles success, the answer to the question of whether or not you sell it is not so obvious or straightforward.
Should you sell your business?
Importantly, there is no compulsion to sell. Usually, no-one can force you to sell, so you can carry on running and enjoying your business for as long as you can and want to. And if you are enjoying it, and there’s every chance of continued success, why sell?
Let’s look at some of the main reasons why people sell up:
- The capital value of the business is such that if you were to sell, you wouldn’t have to work again and could enjoy a life of leisure;
- The capital value of the business is such that if you were to sell if would make a substantial difference to your life and you reckon it’s going to be difficult to increase this value significantly;
- You’re no longer enjoying it, and you would like to do something else;
- You’d like to retire and there’s no–one to take over from you;
- You’ve reach the limit of your capability and for continued growth someone else needs to be running the business;
- As a relatively small player in a market you can see that it’s going to become increasingly difficult to compete, so it’s time for your business to become part of a bigger organisation;
- The threat(s) to the business, for example increased competition, changes in technology or loss of key people, are such that you judge it better to cash in and move on;
- As well as, of course, reasons that are less within your control such as ill-health or death.
As with most things in life, timing is everything. For example you could decide not to sell, grow the business aggressively over the following few years, then find that new competitors or the general economic situation are such that you either cannot find a buyer or the price is no longer as achievable.
So while selling your business is possibly the most important financial decision you’ll make in your life, making the judgement about when the time is right is difficult. There are both personal and business factors to take into account. Often the reason for selling will be a combination of these factors which leads you to the conclusion that the time is right.
As an entrepreneur, it’s easy and common to have an inflated view about your business’s value and its saleability. Bear in mind that there’s got to be a compelling reason why someone would want to buy the business – typically these are customer base, product or IP or specialist knowhow, scale, or desire to enter a new market or geography. Without that compelling reason the business is unlikely to sell, and if you haven’t ever had a genuine approach you must ask yourself seriously whether or not there would be real buyers out there. You could speak with a corporate financier to get a view on this but be careful: sadly in the corporate finance marketplace there are agents who will tell you almost anything in order to secure your sale mandate and therefore your money in the form of a retainer, so make sure you speak to several with strong professional reputations.
Bear in mind also that there are alternatives. You could sell part of your business, for example to a PE/VC company or via a management buy-in, which will help you realise part of the capital value you’ve created whilst still remaining involved; you could reduce your involvement to less than full time via building an excellent senior team; you could partner with other companies to increase your ability to compete; and you could employ someone more talented than yourself to run the business.
It’s hard to give generic advice but, all other things being equal, I’d tend towards not selling until you’ve max’ed out what you can personally achieve and/or built a capital value that is life changing, and the business is properly prepared so that it’s sellable at a good price. And don’t forget that the concept of ‘max’ing out what you can personally achieve’ includes recruiting exceptional people who can help you grow the business far more successfully than you’d be able to do on your own.
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