You’ve invested resources into your startup, and it’s now starting to do well. Your customer base is growing. Your team is happy. Everything is looking up, and the future is bright. So you’re wondering whether you should sell your profitable startup, or continue to build it.
Many entrepreneurs may decide to sell a profitable startup and focus on other important things. Depending on your reasons, you can sell your promising startup too. However, before taking that big step, you need to think long and hard to ensure it is what you want. This article will give you some incredible insights that you can refer to when you’re faced with the important decision of whether to sell your profitable startup, or to continue building it.
Should I sell a profitable startup, or keep building?
The hard and bleak reality is that 9 out of 10 startups fail. So, it seems unrealistic to want to sell your business when it’s thriving. But you should know that many business owners who decide to sell their businesses don’t always do so out of financial desperation or trouble.
Some do it as an exit strategy – where they grow the business and sell it later on. Others sell because of boredom, family obligations, retirement, or they want to simply move on to new opportunities. In 2018 alone, more than 10,300 small businesses were sold, according to a BizBuySell insight. This was a record number for a third consecutive year.
Selling a business is not something you wake up one morning and decide to do it right there and then. A lot of preparation and planning should go into play. As an example, you need to think about your business’s growth potential as you prepare for sale. Companies with high growth potential may sell for a lot more, because prospective buyers know what they’ll be getting in terms of return on investment and vice versa.
The golden rule is not to grab the first offer that comes along. When you have prospects lining up to buy your business, it likely because they see the potential for it to grow and make a lot more in the coming years. In this case, you may want to reconsider selling it – that is if you are in a position to continue running your startup. Holding on to your business is only a good idea when you have adequate skills, resources, and the passion for keeping on.
However, if you cannot run or grow the business on your own, it may be best to sell, while it is still profitable and in demand. It is of no use to hold on to your startup when you don’t have what it takes to grow the business. That will only make it stagnate and eventually fail.
When selling your profitable startup makes sense
New opportunities. Opportunities don’t come by often. When you have a good one knocking at your door, it might be a good time to sell your startup to finance the new venture. Besides, considering the time and effort that go into a new business, you may not manage juggling between the two.
You are tired of risks. If you are like most entrepreneurs, you likely were more confident taking risks during the early stages of the business. But as the company grows in value, and the risks increase, you may become more conservative, fearing greater damage. When you no longer have the luxury to spend years on damage control, or fixing poor strategies, you may start being skeptical towards risky situations that could cost your business. In this case, an exit strategy can be a smart business decision, not because your company is in a bad place, but to make the most out of your investment.
An irresistible offer: A buyer may come with an offer that’s hard to resist. When the offer is so attractive – like one that’s priced above market value – you might want to grab it because they hardly ever come by.
Retirement/health issues: Retirement is perhaps the best time to sell because it gives you extra money to fund your lifestyle. You can also sell your business when you no longer have the energy or time to run it efficiently. Other than retirement, there are also medical issues – where you have to pay for emergency bills, or are no longer in a position to run the business because of health issues.
If you are considering selling your startup business, here are a few things to bear in mind:
Know your timing
Timing is critical for finding the right buyer and maximizing the ROI. Although there isn’t a way to know for sure the perfect time to sell your startup, there are some signs of when you shouldn’t. Don’t sell your startup:
- When the market is in a downturn
- When you still love what you’re doing
- When you believe that the buyer is not the right fit
Know your business’ worth
The last thing you want to do is to overvalue or undervalue your company. Business valuation offers multiple facts and figures regarding how much your business is worth. It also helps you analyze your business’ current and long-term assets, liabilities, income statements and receivables, and other metrics that show your business’s financial health. All these details can help you price your business and get the maximum value out of it.
How to defend your price
Business valuation is essential. But your ability to stand by your price during negotiations with the potential buyer is even more important. Have your financial records handy to help support your price claim. Financial statements like income statements, balance sheets, cash flow statements, and tax returns can help you showcase crucial information like business sales, tax compliance, and profit and loss.
Selling your business
Running a profitable startup is one of the most rewarding experiences to have – but it isn’t always sustainable. You may have already thought about selling at some point. But as time passes, more reasons tip the scale in favor of this major decision. The difference between accepting the call and fighting to stay involved in the business lies in recognizing the signs discussed above. If you need help selling your business, contact us to schedule an appointment. We can go over every component of your business and help you make the right decision.