Seven seasoned entrepreneurs explain the key things you need to think about before you sign on the dotted line.
Have you sold a company recently? Did you get close to selling, but then decide not to? Knowing when to sell is one of those key moments in a business owner's life--and, unfortunately, there's no guidebook detailing exactly how to go about making the decision. Below, seven members of the Entrepreneurs' Organization explain how they navigated the situation themselves.
Set goals for the sale.
"We really weren't sure we wanted to sell, but we embarked upon a formal sale process with an investment banker to explore options. Prior to the process, my business partner and I wrote down the criteria for the deal that we would accept. In the last few weeks of the deal, we were ready to back out because of a change in the deal structure. We got out the paper that we had written four or five months earlier, and realized what we had on the table was more than our expectations just a few months earlier. This small, low-tech technique gave us confidence that we were making the right move."
"At a trade show, I received a visit from a group of executives from a large company in my industry. A week later, one of them called me and said they'd like to buy my company, as it would fill a 'hole' in the corporate portfolio of businesses. As it turned out, the offer was fair, simple, and did not contain many unique clauses that the private equity firms specialize in. I got to know them and concluded that they were ethical. After negotiations, I took the offer. I'm glad I did."
"Business owners live with the unspoken assumption that they can sell their business for enough to retire. Academic financial experts agree someone will need enough capital to produce income at a 4 percent distribution rate. If a business owner hopes to retire as a result of investing the money from the sale, and has a business producing $500,000 of owner income, they must sell that business for north of $15,700,000. Simply said, many find out the math too late and then sell for too little."
"I've interviewed dozens of experts and worked with even more clients regarding the transfer of their company. The most important driver of a successful transition is having a posttransfer 'life plan' that is more exciting and rewarding than the existing life one's living. This often requires a clear set of business, personal, family, and financial goals that have been vetted against each other so that the most important goals survive."
"I sold the same business twice. The first time, the process took almost a year, and when it actually came time to sign the papers, the buyer had no money. I went through with the deal, but the timing wasn't right. I eventually took my company back over, and after about 10 years, I was ready to sell again. My company was in top condition, and I didn't need to sell to keep my company from collapsing. I wanted to sell because I was ready to move on."
"A major point I strive to articulate to my clients is to pay attention to what is happening in their industry. I have assisted a number of clients in identifying the point their market is selling at major premiums, and encouraged them to sell into that. A large portion of these opportunities are missed because of timing. Simple actions such as regularly reviewing your financial statements and paying close attention to your industry can get a business owner ahead of the curve and drive additional value to their business."
"I sold my first business in 2000. For me, I decided to sell when it was no longer fun. However, often the right answer is to sell when the business is on top, which was also the case for me. For another business I own, my partner and I were too busy enjoying the fruits of our labor to realize the best time to sell was when it was hot. The business soon took a slide, and it became too late. I know now to look out for two things: if the business is no longer fun or if it is very successful."
ENTREPRENEURS' ORGANIZATION is a global network of nearly 10,000 business owners, in 131 chapters and 40 countries. Frequently called EO, it is the largest group of entrepreneurs in the world and, since 1987, has been dedicated to building businesses, strengthening communities, and contributing to the world's economic growth. @EntrepreneurOrg