To Sell or Not to Sell? 6 Steps to Take to Answer This Question.
The decision could come four months after a successful launch, or four decades following a steady career -- but all entrepreneurs at some point will face the question: Is it time to sell my company?
With historically low interest rates, a relatively good economy and lots of capital still waiting to be deployed, now is generally speaking a good time to sell a business. Plus, given the coming mass exodus of baby boomers, it’s advantageous to get ahead of the curve.
Still, the wise business owner understands that the market dictates only so much. Selling a company is typically a one-time, life-changing event, so it should be considered as carefully and objectively as possible. Here are six steps to determine if it’s time for you to sell:
1. Consider the feasibility of the transaction.
Applying broad market statistics as full truths can be dangerous when you're thinking about something as significant as a sale. No matter what the market looks like on a macro level, dive deeper into your business’ sphere of influence. What does the M&A activity look like in your particular industry and region: Is it bullish or rather weak?
Research the ratio of buyers to sellers, and look at the current and projected demand for the work you do or the products you make. Getting a holistic, but specific, picture of investment activity will shed light on whether it’s a good time for a transaction.
2. Evaluate how your company compares in the market.
Knowing what your business is worth -- and why -- will paint the best picture of market-readiness (or lack thereof). Perform a business valuation and make sure you address:
- The book value of the company and financial condition of the business
- The company’s earning capacity
- The history of the business
- The question of whether the company has goodwill and/or intangible value
- The market price of stocks for other similar businesses
Once you have an objective understanding of your value, think about where you stand among your competitors. Are you outperforming your peers or generating underwhelming results? An investor will ask these questions -- so you should, too.
3. Get real with your strengths and weaknesses
Now is the time to be brutally honest. Where are you excelling, and what needs serious improvement? Start by digging into your client portfolio. You might have a Fortune 500 client, but if that income represents more than 20 percent of your revenue, you’re facing risky customer-concentration problems. Also, consider the strength of your brand and your management team. Has your leadership sustained profitability and growth even during difficult times?
4. Determine your personal objectives.
What do you want, long-term? Do you have a personal incentive to exit the company, such as retirement or another opportunity? Are you willing to stay in the business for another three to 10 years? Make sure you’re ready for a new chapter, because once you sell, the reins are gone for good.
5. Test the market.
Like dating, at some point, you’ve just got to put yourself out there. Make cold calls to potential buyers and, after using theoretical language to discuss high-level financials and facts, ask if they might be interested in pursuing an investment. Get feedback on what they would be looking for and see if anyone nibbles the bait.
6. Make a list.
Compile the information you learn from your business valuation, personal goals, market assessment and cold calling into an old fashioned pro-con list. Seeing the variables side-by-side provides more clarity than you might think.
After spending time wading through this process, you may find that the wisdom of a sale becomes self-evident. But it’s just as possible that you'll find it's obviously not the right time for a transaction. Still, you may decide to pivot your company in a new direction -- or modify your operations or expand your reach so that you can build value and get more for the company a few years down the road.
Gather what you’ve gleaned through the process and put it to use. Knowledge is power, after all, and arming yourself with insights into your company will be the best way to successfully map your next strategic move.
Ralph Montgomery is a managing director of FourBridges Capital Advisors, an investment banking firm serving business owners across the southeast. FourBridges Capital Advisors is headquartered in Chattanooga, Tenn. Montgomery is based out of Atlanta.