Parting ways with your business is a difficult decision that carries both emotional and financial weight. You have poured years into nurturing the growth of your company. Your business has offered a comfortable livelihood, given you a life purpose, satisfied your customers’ needs, and provided for your family and employees. How do you know when it is the right time to move on? To answer this question, you must ask yourself two more: Is your business prepared to thrive without you? And are you ready to let go? Getting the correct answers to these questions is critical to preserving your company’s legacy, doing right by your buyer, and ensuring you do not regret your decision to sell your company.
Rigid analysis and preparation are key when facing such a momentous decision. Here’s how to determine whether the stars are lining up for a sale and what steps to take before letting go of your company.
Indicators That Your Business Is Sale-Ready
Switching your focus from growing your business to preparing it for sale requires knowing exactly what buyers want. Your company’s financial health, operational strength, and market position affect how you can sell your company and what price it can command.
Dena Jalbert, founder and CEO of Align Business Advisory Services, points out what matters most: “Key indicators of readiness include having well-organized and accurate financial statements, a diversified customer base, strong recurring revenue streams, and documented processes and procedures. Assessing these areas early can clarify readiness and highlight areas for improvement before going to market.”
Here are a few reasons why those factors matter:
- Clean and accurate financials make your business more attractive and easier to analyze.
- Diversifying your customer base means less risk for the buyer.
- Well-established revenue streams prove to potential buyers that the company will likely remain profitable.
- Documented and established systems signal buyers that the company can weather your exit and continue to thrive.
As noted, market position is another essential factor to consider. Your company’s current market share and your industry’s growth potential must be solid for your business to achieve the best possible valuation.
If your business checks these boxes, you might be able to sell. Otherwise, consider taking some time to improve your weak points and put your business in a stronger position. You might consider working with a business advisor or exit planning strategist, who can help you identify your company’s weaknesses and offer strategies for addressing them.
Overcoming Founder Dependency
Businesses that lean too heavily on the founder, whether for daily decisions, client relationships, or specialized skills, are often more challenging to sell. If you are the heart and soul of your business and you’ll no longer be around, there won’t be much business to sell.
A strong, independent leadership team goes a long way toward easing buyer concerns. If your business lacks this department, you must cultivate nascent leaders by giving them decision-making responsibility and encouraging project ownership. Emphasizing cross-functional collaboration is another way to ensure that employees gain the knowledge and skills they need for the business to thrive after your departure. When your team can keep the company running and growing without you, your company becomes a far more attractive business opportunity.
These are some key signs that you might be ready:
- Your company’s org chart is well-defined, and critical functions are clearly delegated.
- Your team can make both operational and strategic decisions without your input.
- Customers and vendors work with multiple employees, not just you.
- The company runs smoothly even when you’re not there.
If these statements aren’t factual yet, now is the time to build up your company’s independence from you. A self-sustaining business will fetch better offers and allow you to exit on your terms.
Market Timing and Economic Conditions
While internal preparations are essential, external market factors play a significant role in determining the right time to sell your company. While attempting to sell during an economic downturn may result in a lower valuation for your business, the devil is often in the industry—or company-specific details.
External factors that impact buyer interest and influence the valuation multiples your business can command include the following:
- Industry Consolidation: Buyers often snap up companies to grow market share. If your industry is hot, it may matter less that the overall economy is not.
- Economic Trends: Recession-proof businesses typically command higher prices. Buyers will take note if you offer an essential product or service with inelastic demand and strong customer loyalty.
- Interest Rates: Lower rates mean buyers may borrow more easily. Although you can’t influence the Fed’s moves, you can act to reduce your business’s reliance on debt financing. Lowering your borrowing costs can boost your company’s profitability and cash flow, making it a more attractive investment opportunity.
Jalbert offers some valuable insights: “Buyers are highly active and have significant capital they want to deploy. In particular, noncyclical, recession-resistant companies or those well-positioned to benefit from trends like onshoring and supply chain localization continue to attract strong interest. While the broader economic environment can impact deal volume, strategic and financial buyers alike are still eager to acquire quality lower middle market businesses—especially those that demonstrate resilience and scalability.”
While you can’t control the market, you can position your business as a standout opportunity. Focusing on durability and scalability allows you to better appeal to buyers in any climate.
Personal Readiness for Exit
Along with preparing your business and anticipating economic conditions, you should consider more personal factors. A survey of business owners who sold their firms found that 76% of them rued their decision within a year. To avoid being among that regretful group, you need to know why you want to sell your company and what you intend to do afterward. Take the following into account:
- The emotional bond you have to the business and how well prepared you are to leave it behind. Being a business owner may have been a substantial part of your identity for years or even decades. How will you adjust when that’s no longer the case?
- The role you see for yourself after the sale (whether that’s a full exit, a transition period, or continued involvement). Perhaps you’ll still be engaged with your business after the sale, which may or may not ease the transition. If you won’t be, identifying a new purpose or passion for your post-sale life can help you avoid the aforementioned identity crisis.
- Your family’s expectations and how the sale might affect your relationships. Your role as a business owner didn’t just shape your own sense of self — it likely shaped your entire family dynamic. Before selling, consider how the move will affect those closest to you financially and emotionally.
Unexpected emotions are the norm when facing the reality of selling what you’ve worked hard to build. The business that consumed your time and energy for years will no longer be yours. That can bring excitement, fear, or a mix of both.
Have conversations early on about selling, including with trusted advisers, family members, and friends. This will help you feel confident that you are ready for the next chapter of your life.
Why Partnering With Experts Matters
Creating and implementing an exit plan is a long-term process that could take years rather than months. Thorough preparation can help you increase your business’s valuation, prepare your employees—and yourself—for the transition, and preserve your company’s legacy.
Professional advisors, including M&A consultants, attorneys, accountants, and wealth managers, can provide insights into what strengths to focus on and what weaknesses to shore up. These advisors might also offer a realistic view of valuation and help you plan the optimal timeline for your exit.
Most successful exit plans begin two to three years before the actual sale. This runway gives you time to:
- Fix structural weaknesses that could lower your valuation
- Implement growth strategies to sustain profitability
- Document multiple years of improved performance
As Jalbert emphasizes, “We recommend working with experienced advisors early in the process, even if a sale is a few years out. With the right preparation, these obstacles can be addressed proactively to maximize valuation and streamline the transaction.”
The cost of professional advice pales compared to leaving money on the table or derailing a deal due to preventable issues. Early consultations with experts can facilitate a sale and maximize what you walk away with.
Sell Smart, Sell Strong
The sale of your business marks the end of a long, hard work and dedication journey. To make the transition to work, you have to take a hard look at the fundamentals of your business, its ability to succeed without you, the current market conditions, and your state of mind.
The best exits happen when you control the process, not when circumstances force your hand. So start preparing now, and when the right opportunity arrives, you’ll be ready to negotiate from a position of strength.
Financial Disclaimer
The information provided in this article is for general informational purposes only and does not constitute financial, legal, or investment advice. Readers should not interpret any part of this content as an offer or recommendation to buy or sell your company or as a substitute for professional consultation. Selling a business is a complex financial and personal decision that depends on many individual circumstances. You are strongly encouraged to consult with qualified advisors, such as certified financial planners, attorneys, tax professionals, and M&A consultants, before making any decisions related to the sale of your business. Neither the author nor the publisher assumes any responsibility or liability for actions based on the information contained herein.
Featured Image Credit: Photo by Vitaly Gariev; Unsplash; Thanks!
