There’s nothing worse than waiting for the last minute to do something and then knowing you either missed the boat or got on the boat with the leak. Well, it’s often similar with entrepreneurs when they decide to sell their business. They either wait until a life event like illness or death forces them to make a decision, or fail to prepare far enough in advance of their desired departure from the company.
To help your entrepreneurial clients understand where they are on the road to selling their business, we’ve developed a checklist of sure signs that it’s time to start the process. Ideally, companies should be asking themselves the right questions as far out as 5 years from their hopeful date of sale. Start early, be prepared, and get ready for smooth sailing.
If your client is finding the risks of their business more and more burdensome and less like something they want to maintain, it may be time to lighten the load. Risks tend to grow with a business. Some seasoned entrepreneurs become more conservative as time passes and don’t want to spend their last years at the company in a high stress environment or cleaning up mistakes. As a result, they stay away from big moves like significant growth strategies, mergers and acquisitions, or organizational changes resulting in stifled growth of the company which can hinder a sale.
Semi-retirement is looming
If retirement is on the horizon in the next 3-5 years for your client, it’s time to start the selling process. The same can be said for semi-retirement. More and more Canadians find themselves working well into their 60’s and beyond, but at a different pace. Your client might be talking about “slowing down”, but not necessarily leaving the game altogether. By planning early, your client can find a buyer who is more likely to negotiate a sale package that includes keeping your client actively involved in the company for an extended period, but with a reduced role.
One of the most common causes of a rush business sale is the illness or death of the owner or that of a family member. It’s not always an easy thing to talk about, but when an entrepreneur’s health is taking a turn for the worse with an unsure outcome, it’s best to begin the process as soon as possible. Not only does entering the sale process give them one less thing to worry about, but also a sale can easily be postponed if health improves or circumstances change.
The perfect market
“Leave when you’re on top” is an adage that holds true for business as much as it does for athletes and movie stars. Even in an economy that seems less than ideal, there are always buyers who are looking for well-managed, successful companies and are willing to pay a good price for them. Entrepreneurs who understand what their company is worth at all stages of their ownership and in all economic conditions fare better in a sale. When entrepreneurs find themselves in a situation where the value is attractive enough for them to consider either retiring or leaving to do something else, knowing the sale process allows them to move faster and sell for more.
A string of really good years
Buyers are on the lookout for high performing companies. When a business can put together several consecutive years of really great financial data, they’re more likely to get multiple offers with a price and conditions that meet their needs. Preparation is the key to getting the most out of a business.
The passion is gone
There are many reasons that entrepreneurs reach the point when they are ready to move on. Maybe it’s not fun anymore, the business impacts their family and personal life too much or the work’s not everything they’d imagined. When the passion leaves, so often does the leadership, commitment, and new ideas needed to run any business – large or small. It’s important that entrepreneurs recognize this early so they can start the process before this challenge impacts the business success.
Can't keep up
Everything in the world of business moves fast. To stay competitive a company needs leaders who can stay on top of (and in fact be ahead of) new innovations, technology, and their competitors. If an entrepreneur is the brain trust of the business and is wanting to pull back from the business, it might be time to make some changes. Smart owners either grow their team to include those who can help them remain innovative or decide it’s time to pass the torch onto someone who can take the business to a new level.
The start of a family empire
Selling a company to a family member can be a difficult process to navigate. Both sides want to be sure the other gets what they need and want – sometimes to the detriment of their own needs. A fair and independent valuation is an ideal place to start as early as 5 years in advance of the transition so both parties can understand what they’re stepping into and how they can make it successful.