August 19th, 2015.
Business Matters: Knowing When It’s Time to Sell
For some individuals, their business becomes like another child. It’s their baby and they’ve watched it grow over the years, guiding it in the right direction so it can be the best it can be. That’s why, when the time comes, parting with it can be hard – even if it is the right thing to do.
If this sounds like you and you’re considering passing on the torch and selling your company then you may want to read the following points.
How Do You Know When It’s Time to Sell?
In the famous words of pop act Boston, ‘it’s more than a feeling’. Selling a company you have invested a lot of time and money in isn’t a spontaneous decision. So, why do people consider moving on? Here are some of the most common reasons:
• It’s no longer fun or interesting – The passion has faded.
• Exhaustion – You just can’t handle the workload anymore. Perhaps business has boomed but you can’t handle it anymore. It’s affecting your health.
• A career or life change – Running your business was great, but you feel it’s now time to go in a different direction. Perhaps you’d like to relinquish responsibility and go and work for someone else, or you want to change industry completely. Moving abroad, getting married or divorced are all big life changes which may spark a desire to sell too.
• Retirement – It’s time to relax and make the most of your time.
• An offer you can’t refuse – Sometimes it simply comes down to a huge cheque. Perhaps your business has peaked and you can get a lot of money for it. You’ve all heard the saying ‘quit while you’re ahead’.
What Is My Business Worth?
So, once you’ve decided you want to sell, you’ll want to learn how to value your business. There are a number of different ways you can do this and each will be affected by varying factors. One of the most popular is to multiply profits. For example:
Value = Adjusted Net Profit x Profit Multiplier
Other methods include:
• Assets valuations
• Rule of thumb
• Discounted cash flow
Though it is important to remember, a business is only worth what someone is willing to pay for it and what you’d be prepared to sell it for.
How to Sell a Business: Other Things to Consider Before You Sell
Is your business ready to sell? – The best time to sell is when you’re at your peak. This will ensure you get a lot of attention and the best price possible for your company.
When doing due diligence, most buyers will build projection models on the past 3 to 5 years of business performance therefore, a positive upward trend in your financial history will stand you in good stead.
Is the market right at the moment? – Take a close look at the current market conditions for your industry. If there is little demand and other businesses aren’t selling well, don’t believe your company will be the exception (although it may be). Instead, hold onto the company for a while until you’re likely to get the price you really want.
So, do you think you’ll be selling up soon? It’s a tough decision to make. But we’re here for you in all your future endeavours. Whether it’s commercial mortgages, bridging finance or invoice factoring you’re interested in, we can help.
Read more: A Guide to Buying a Business: Things to Consider Before You Buy