Starting a business is much easier than selling a business. An entrepreneur with a good idea with staying power and who is well funded can be successful. Having a business plan that maps out what product/service is being sold, who will buy it, what will they pay for it, how will the customers find out about it and what will it cost is only the beginning. It is even more important to create the plan for the exit: when is it time to sell, who will be the buyer and what is the fair market value.

But when is the right time to sell?

1) The business has hit a plateau. Starting a business is very different from growing a business. Many entrepreneurs have what it takes to start a business, but lack the necessary skills to grow the business. The old adage "if a business is not growing it is dying" is a quote every entrepreneur needs to think carefully about. It is true that not every business has growth potential. For example, a hair salon with a certain number of chairs and a certain number of stylists may have difficulty growing once the chairs and stylists are working as many hours a day as possible. But then one could also make the case that the right buyer with multiple salons could bring economies of scale to the operation, add retail and provide a growth plan. The point is an entrepreneur must know when it is time to reap the rewards of a sale because (s)he has brought her/his best to the business and not doing so will only devalue the opportunity.

2) A Buyer Appears. Timing in life is everything, or so they say. (Not sure who they is but...). Too many entrepreneurs resist the opportunity to sell just because the buyer comes unsolicited. Some would say "don't look a gift horse in the mouth' which according to Wiktionary means "inspecting the teeth of a horse given as a gift was considered ungrateful. It would mean that recipient is trying to see if the horse is old (undesirable) or young (more desirable)."  In other words, if someone wants to buy your business unsolicited they are more likely trying to get it for less than it is worth. This most certainly isn't always the case. The buyer may be rolling up (purchasing multiple small companies in the same market) and merging them to take advantage of economies of sale. The buyer might just be looking for a business just like yours. It might be easier to see this point if you think of yourself as wanting to purchase a house you have always had your eye on. Often a distinctive house in a desired neighborhood has buyers long before the occupant ever thinks about selling. However, there is a major difference between a buyer wanting a particular house and a buyer wanting a particular business. The buyer for the house will wait for the house and be willing to pay a premium when it is available in order to win the sale. But, the buyer for the business makes her/his decisions much more on timing of the market and the business valuation. An entrepreneur who dismisses the unsolicited buyer because (s)he doesn't like the timing (or have an exit strategy plan) may never have another opportunity to exit.

3) The business is well-positioned. The point of having an exit strategy is that most of the preparation for a sale has been done. A smart business owner knows that although (s)he has a definitive amount of time her/his business does not. A business can be passed down to family members, sold to outsiders, merged in a rollup, split up and sold for its asset or bought out by its employees. In other words, there are many scenarios for a sale. But, no successful sale will ever take place if the business has not been positioned for sale.

Ask yourself these questions to know if you have begun the positioning process:

Does the business have clean books that clearly demonstrate where the income comes from and what the expenses are?

Do I have adequate records to show what the assets of the business are and proof that they are the property of the business?

Do I have key employee contracts? Customer contracts? Vendor contracts? Transferable databases? Transferable leases?

What goals do I have for myself when and if I successfully sell the business?

Every small business owner must take the time to ask these questions and be prepared for a successful and well-timed sale. Selling your business may not be easy but I promise you it is rewarding. Email me at vicki@vickidonlan.com and get starting positioning your business now.