Every business has both a beginning and an end. While it may be hard to fathom now, there will be a time when you will lock the door and turn off the lights for the last time. It can be a scary thought considering entrepreneurs put so much emotional and physical energy into starting and growing their businesses. Their identity is wrapped up in what they do for a living. Yet, it doesn’t change the fact that there is a “last day” coming, whether it’s on your terms or not.
“As with a building or any other physical asset, it needs to be managed as such.” That’s the message from longtime business broker, Alan Austin. He expands on the analogy, “Generally speaking, a building is an appreciating asset that if kept in good condition, will be worth more than when it was built two decades before. However, if the owner neglects maintenance and structural problems appear like a leaky roof or cracked foundation, that building will be worth much less.
The same is true for a business. If the business continues to adapt and expand, the value will continue to grow, if not, the business may develop fundamental flaws that hurt value or even make the business unsellable.”
When is the right time to sell a business? The answer isn’t always clear, but while the business is continuing to grow and prosper, begin to look for these 7 signs.
Sales volume or quality is slipping because the owner is working less
There is nothing wrong with working less, but make sure you have the people and processes in place to handle business in your absence. If the business is overly dependent on its owner, performance will decline and value will erode. Buyers base their offers on actual historical performance, not what the business “could” be doing.
Loss of motivation to train and mentor new employees
A leader’s job is never done. Inspiring and training new and existing employees is among the highest and best use of owner time. Failing to do this is a disservice to everyone that draws a paycheck from the business.
Large capital investment is needed to remain competitive
“You’re either growing or dying” says Austin. Investing in new technology or reinvesting in your employees’ product knowledge and skillsets does cost money. But, if you aren’t continuing to invest in the business, it may be time to look for a buyer with deeper pockets.
Approaching retirement
Father time waits for no one. Liquidating your largest asset can mean a comfortable retirement filled with fun activities and family time. Start planning for the business sale at least 5 years out to extract maximum value.
You want to get involved in other businesses
Entrepreneurs love the thrill of building and the validation customers provide. If the entrepreneurial drive is strong in the owner, the allure of a new start-up may be more appealing than continuing to manage a mature business.
There is a looming health issue
As the owner ages, the chances of developing health concerns increases. Cancer, Dementia, Parkinson’s disease, or a host of other ailments should create a sense of urgency to sell the business. Waiting too long runs the risk that the business will become a burden on the family and if the owner is unable to actively participate in the sale process, the business could lose value.
Nobody to pass the business to
A son, daughter, niece, nephew, or even a key employee are all possible successors of the business owner. Passing a business to the next generation is a wonderful way to ensure a legacy, but if none of those options exist, it may be time to sell the business
“Timing is everything,” says Austin. “Clearly, it’s good practice to sell the business before it enters a period of decline.” Sometimes getting an outside party like Mt. Vista Capital to take a look at the state of affairs and give an honest assessment of value and salability is exactly what the business owner needs. Someone that is not emotionally invested can make a sound judgment based on the facts. Please let us know if we can assist this type of assessment.
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