Its hard to know when to sell your business. Business is a flexible, ever-changing thing, and every persons situation is different. In this article, well deal with the two major types of sales. These are: The sale to extricate yourself from your mess of a business, and the sale to cash out on your business that is doing very well. Of course, there are many other situations. Perhaps you arent spending enough time with your family. Perhaps the company would be better off in someone elses hands. At the end of the day, those are the top two reasons for business sales.
Well deal with the more positive situation first. When your business is doing very well, raking in revenue with a nice profit margin, you may receive an offer from a larger company that wants to acquire you. At this point, your business should probably have a few characteristics.
You have a positive cash flow or are profitable
You are in possession of something that sets your company apart from the giants in your field. This can be anything from a Fortune 500 client, or some invaluable intellectual property or patent. Whatever it is, it is difficult to emulate.
Your business growth has not stagnated or dropped. Preferably, it is continually rising.
It is difficult to make the decision of whether to keep on rolling with your company or play it safe and sell it. You need to look at some data to make an appropriate decision. You also have to factor in your companys stage in the business life cycle. There are three main stages when you can get the most value for your business, relative to the work youve put into it. Usually, a startup that is three months old wont fetch a value as a company that is a year old, simply because there is more risk and less value in a startup compared to an established company.
The first stage is right after your company has obtained something that makes it unique. This will probably be early on in the life cycle. For purposes of this article, well use an ecommerce store that sells books, such as Amazon.com. Amazon.com gained fame when it introduced its affiliate program. Amazons affiliate program was probably the first of its kind. Affiliate programs existed at that time, but Amazon improved the process tremendously, to the point where 90% of internet users had seen an Amazon.com affiliate advertisement. This was their key technology that couldnt be emulated, because Amazon stuck a patent the idea. At this stage, the company was worth a lot more, just because of this one program.
The second stage where Amazon.com could have maximized their value was during its extreme growth stage. Suddenly, everyone woke up one morning and realized that they could get books for much cheaper at Amazon. This increased sales exponentially. If you have a large customer base, or if you have brand recognition to some extent, you are probably an attractive target for mergers.
The final stage was just before its IPO (initial public offering.) This stage wont apply to many companies, simply because they dont make it that far in the life cycle. However, just before an IPO, a larger company that has flirted with the idea of acquiring you will get serious, because they will lose an asset and gain yet another competitor if they dont. If youre business is in one of these stages, it may be wise to look at selling as a viable option. If not, just wait it out. The appropriate time will come.
Now we look at the more negative time of selling- when you are constantly losing money and your business is failing. It is pretty simple to identify that. Just look at your bank account. Is there more or less money than you started out with? (OK, we are exaggerating. Look at your profit and loss statement. If you have been losing money for a period of time and you dont have a strategy in mind, you need an exit strategy.) Make sure that you arent just in a temporary slump, however. The large majority of businesses go through a slump at some time, and some of them make it through. If you think theres a way to boost your sales, stick with the company. Remember that there are ups and downs in business. Maybe if you are persistent now, you could be a millionaire in the future.