Walking away from your life's work is a big step, and one that doesn't come without its obstacles.
Determining your readiness to sell your business--sans any pressing circumstances to do so--largely comes down to two factors: 1) your financial readiness to sell a company, and 2) your emotional readiness to walk away from a company.
Assessing Your Financial Readiness to Sell a Company
Your financial situation, the easier of the two factors to consider, is oftentimes the one most overlooked by sellers.
The key question is whether the proceeds you will receive from selling your business will give you the financial means to leave the business.
For most business owners, the value of their business is a large chunk of their personal net worth. You're one of the lucky ones if the proceeds of your sale are not required for you to retire or move on.
Selling a business involves cutting off your access to the money you've been drawing out of the business every year. Ideally, the proceeds from the sale of your business will be large enough to cover your obligations going forward.
How much money do you need and what sale price will give you that? Can your business command that price or anything close to it? If not, now may not be the right time to list your business for sale.
To best assess your financial readiness to sell a company, it's often a good idea to engage the services of a reputable wealth manager, an individual who can analyze your entire portfolio and calculate your post-sale needs. In order for this process to be accurate, it should include a business valuation, ideally from a knowledgeable, independent third party.
With this information in hand, your wealth manager can now appropriately analyze your portfolio and understand whether or not a sale will yield enough money to fund your projected retirement and allow you to sustain the lifestyle you want post-sale.
If the proceeds from the business sale are not enough to allow you to leave the business, you may need to spend a few years building up the value before you sell, or you might consider lowering your targeted financial spend after the sale. Alternatively, you might choose to come up with a way to supplement your income and bridge that gap.
Assessing Your Emotional Readiness to Sell a Company
The more elusive part of evaluating your readiness to sell is your emotional readiness.
Can you really walk away from the business you built for so many years? While most transitions will require the seller to stay in touch with the new owners for some period of time, there is still that moment when your services will no longer be needed. What are your plans for when that day arrives?
It's best if you can detail exactly how you are going to spend your days after the sale. This gives a clear indication of whether or not you are ready to sell. For instance, will you plan trips and activities with friends, kids and grandkids? Will you pursue a hobby? Or even run another business in a completely different field? If you cannot foresee or describe your post-sale life you should question your sale decision.
While there might be some legitimate reasons you have not planned this next phase--burnout, a partnership break-up or an illness--your motivations matter in so many ways.
Potential buyers, beware; the owner's next steps and motivations for selling will become extremely important during the actual transaction process. The seller's motives can be an indication of how they will handle a business negotiation, their willingness to provide the necessary training and transition to you, their flexibility and patience with a deal, and most importantly, their receptivity to heeding the advice of any professionals helping to manage the transaction.
The story of a seller who owned a niche manufacturing business illustrates the importance of assessing emotional readiness to sell.
The seller's business was very unique and had great fundamentals. It was in a great position to attract multiple buyers and, in fact, received six substantial offers shortly after it was listed.
Unfortunately, none of those deals were consummated. Why? It really came down to the fact that the owner was just not emotionally ready to walk away--that is unless he received an exorbitant (and unrealistically high) offer. He had engaged the expertise of a business intermediary, took the time to meet with many different prospective buyers and appeared to be committed to selling. Yet when the moment arrived, he could not disengage from the business. He created objections, but it boiled down to the fact that he just wasn't ready to sell. The net result was that the time, energy and capital of many involved parties was wasted.
To this end, it's really important to ask yourself the tough questions before pursuing the difficult and long task of selling your business. Will you have the necessary funds for your desired post-sale lifestyle, are you emotionally ready to pursue a life after business ownership? If you cannot develop a post-sale picture of your life, you may need to keep running the business--assuming you have the will and the drive to remain competitive and relevant.