You've worked hard to turn an idea into a business. You've poured time, energy and money into your dream. You've sacrificed your free time, your relationships and your sleep to grow and become successful.
How in the world can you think about selling?
Deciding to sell a business is gut-wrenching. While you are ready to let go and start a new venture—or retire—you care what happens to your business. You want to protect your employees, vendors and customers and ensure that they are treated fairly. Furthermore, you may never feel like it is the "right" time to sell, so you hold off hoping that the stars will align and you'll just know when the time comes.
Don't miss your opportunity to sell and move on with your life. If all of these elements fall into place, don't hesitate to put your business on the market:
The market is on your side.
Ideally, you want to sell when it is a seller's market—not a buyer's market. If real estate in your area has started to boom again, it is a perfect time to sell. However, if the real estate market is still struggling to rebound, you may want to hold on to the business a bit longer. A respectable real estate broker will be able to guide you through the process.
You know what your value is worth.
Don't assume you know, and don't let your ego inflate the value. Receive a professional valuation from an accounting firm, business broker or investment banking firm. If you aren't currently working with one of those firms, seek out a trusted local firm. They'll be more likely to understand the market in your area. Ask for recommendations from other business owners you trust, or check with the Better Business Bureau to surface the best option for you.
During the valuation process, you will learn your business' market position and financial situation, and a valuation will provide an idea of what you stand to net from the sale. The process will also show the true profitability of your business, because you can eliminate any personal, unexpected or unusual expenses you attributed to the business that aren't recurring and should be excluded from your financials.
You will earn back your investment.
This is likely something you will discover during the valuation process. You will need to account for any loans you must pay back and any debts you personally accrued, such as refinancing your home or receiving a personal loan from a family member or friend to cover expenses. Before letting go of the business, you need to pay back all of those debts, so ensure that once that’s done, you'll have enough money left over to start the next stage of your life. Additionally, consider all of the time you invested in the business. Calculate the hours, plus the average salary you think you are worth. Will you make all that money back during the sale? If not, can you live with that?
Business is thriving.
When you can show revenue and your EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) increases, your business is more appealing to investors and other aspiring small business owners. If you are struggling, you can still sell, but you will have less leverage with negotiations. If business is good and you are ready to sell, do it.
Your data is current and accurate.
You need to be able to provide to-the-minute sales reports, overhead and production costs and marketing analysis. Be as detailed and as thorough as possible when compiling the data. If you can lay out everything for potential buyers very clearly, they will need to do less investigating on their own, quickening the sales process. Most buyers want to see at least three years' worth of data.
Your legal paperwork is up-to-date.
Pending issues aren't affecting business.
Resolve any lawsuits, customer complaints, product deficiencies and so on before you even think about talking to a buyer. No one wants to pay good money to clean up your mess. Whatever you do, don't try to hide problems; they almost always surface.
You have a solid staff.
Buyers want a smooth transition once you're gone. The best way to ensure that is to leave behind a group of competent, independent high achievers. Most buyers will investigate the staff, looking into turnover and performance issues. Many will even question current—and potentially past—employees to learn of any problems, holes in training or personal needs. If you have personnel issues, buyers will learn of them, and not being open about any issues can hurt the deal.
Important: Have a successor in mind. The new owner may choose the management staff, but it is always a good idea to recommend a trusted employee who can fill your shoes.
Your personal finances are in order.
If you want to retire, ensure that you have put away enough money to support yourself and your family. CNN Money offers a simple calculator that tells you how much money you need to have saved in order to retire. If you want to open a new business, make sure that you have enough seed money to do so without emptying out your savings.
You can walk away ultimately feeling relieved.
Of course you will experience anxiety or sadness over selling your business. That is only natural. However, if the thought of leaving the business paralyzes you with fear or guilt, you may not be ready to let go just yet.