Should you sell your business?

This article was originally featured in Fast Company.

You sense it’s time to think about selling, and you need to clear the dollar signs from your eyes and think about your prospects. What are the most important considerations?

You’ve spent years building your business, pouring everything you’ve got into it, and you’ve achieved success beyond your wildest dreams. Or maybe your new startup has taken off like a rocket. Either way, you sense it’s time to think about selling, and you need to clear the dollar signs from your eyes and think about your prospects. What are the most important considerations?

FOUR TIPS + ONE YOU HAVEN’T CONSIDERED

Regardless of how long you’ve been at it and how successful you’ve been, if you’re like most entrepreneurs, your business has become a part of you. If that’s true, it’s likely hard to separate yourself from the business with enough distance to see clearly. When it comes to selling and moving on, there are five things you should consider—four that are fairly obvious, and one that many people overlook.

1. PERFORMANCE AND BRAND IDENTITY

The first issue to take into account is your company’s financial performance, trajectory, and projections. Many entrepreneurs try to time the sale when top- and bottom-line growth starts to decelerate, but buyers are looking for momentum, so the timing and valuation can be tricky.

Buyers also want to buy a business that has been institutionalized, rather than one that is dependent on an individual who has created all the wealth. While you may or may not plan to stay on, it’s important to have a viable succession plan in the books to assure a potential buyer that they can replicate the business’ success. Is it you/your identity that creates value in the brand, or can you persuade a buyer that it will endure without you?

2. THE NATURE OF YOUR BUSINESS

How cyclical is your business or industry, and what stage of life is your business in? How much market share do you currently have, and what are the avenues for growing share? Are you a disruptor who needs more capital to scale? What are major structural trends impacting the industry, and are there consolidation trends that are favorable for a sale? Are you, like so many businesses, dependent on a supply chain that has been in flux, or are there regulatory issues today or in the future that could impair your viability? Answering all of these questions is critical to creating a compelling case for a potential buyer.

Regarding innovation, is your firm’s reputation based on a game-changing technology? Have you capitalized on AI or other automation that means you can do more with less? If so, you may have higher embedded profitability than a company that’s lagging behind its peers or competitors.

3. WHAT’S OUTSIDE YOUR CONTROL?

The third issue to consider is the general macroeconomic environment. For many businesses, it’s best to sell when the economy is strong and confidence is high. However, your company may trade for a higher value in a recession because your business or industry is counter-cyclical or because you’re part of a market sector that is less impacted by the economy, such as health care. Either way, the macro environment—from interest rates to the jobs market—will all impact how your company is perceived in the marketplace.

4. VALUATION

The fourth issue is how capital markets and valuations for the company are faring. Buyers tend to think strategically about how a business relates to the interest-rate environment. Now that we’ve exited an era of cheap capital—and with inflation looking persistent and sticky—a buyer will want to know how your business reacts to these realities.

On the flip side, is there a lot of M&A activity going on? That can increase the likelihood of a higher multiple. Creating competition for your business can attract more buyers, resulting in a better price. Strategic buyers are willing to pay a higher multiple because they think they can scale for growth, while financial buyers try to extract or facilitate recapitalization of a company. Understanding a buyer’s motivation for being interested in your company can help you better position yourself in the marketplace.

5. ARE YOU READY?

The fifth—and, in my opinion, most under-considered—factor in contemplating a business sale is at the epicenter of the other four: Are you ready? Think about what is motivating you to consider a sale at this particular moment: Are you stressed and stretched thin? Is your business in distress? That’s a very different situation than the idea that you’re simply ready to move on to the next stage of life. In either case, it’s critical to look at what’s next when you answer the question: Are you ready?

Over the years, we’ve counseled many wealth creators who have built and sold one or more highly successful enterprises, only to enter the “emotional hospice” phase in the months and years after the sale. This emotional hospice can be the result of regret, family strife, financial struggle, or the realization that you—and perhaps your extended family—have not given the right amount of consideration to three key areas: how the business of your family is different from your family business; how the next generation of your family sees the world (and their future); and whether you have mistaken wealth for legacy.

To avoid emotional hospice, deeply consider the above questions. Work through the answers with a series of courageous conversations with those closest to you. Then, put your intentions in writing via not just an estate plan, but also through a family mission that will guide you and give you a sense of purpose as you transition into the next stage of your life.

RUN YOUR COMPANY LIKE IT’S FOR SALE

Educating your children and separating the business from family and legacy is critical, and while you do that, consider running your business as though it’s already for sale. These two lenses can help you focus on value creation and enduring wealth and legacy like none other.

‍