While the late, great Vince Lombardi famously said “Quitters never win and winners never quit”, that’s not always true in the business world. Rather, a winner knows when it’s the right time to get out. Many business owners delay decisions and hang on too long, but this mistake is entirely avoidable. Below are several signs it may be time to sell:
Slowing Top-Line Growth
When a company is on its way out, the owner may keep waiting for a big client or new employee who can turn things around. An owner may believe that it’s possible to grow out of their financial difficulties, but this is rarely the case. Most owners repeat the same steps in hopes of getting different results, which can lead to debt accumulation and decreased business valuation. While hope is a cornerstone of the entrepreneurial process, it can’t be relied on as a sales or marketing strategy. A CGK M&A advisor can offer sage advice when it comes to stemming losses and projecting your company in the best possible light for selling.
Poor Performance
If the company just isn’t doing well financially or operationally, it may be time to sell. Debt rates and levels are a key indicator; they’re easily tracked via cash flow statements. If the company is constantly borrowing money to cover its losses, a sale may be a worthwhile consideration.
Owner Detachment
Times of profitability and growth are great opportunities for successful business sales, but the owner’s overall passion is also a good indicator. If you’re just going through the motions and are no longer invested in your job, it may be the right time to sell the company. Boredom, burnout, and a desire for a career change are all signs it’s time to consider selling.
Consistent Upward Sales Trends
Buyers typically look for businesses with at least a three-year history of upward trending revenue. To take advantage of this fact, the owner must understand where the business is in its growth cycle and make the sale when the timing is right.
Significant Gross Profit Margins
Over the years, profit margins tend to shrink as marketplaces become more competitive. In many cases, selling while margins are still wide is the right choice for a business owner.
Customer Annuities
When a business has long-term customers who reliably use its products and services, it’s more valuable to potential buyers. These customers’ frequent payments are a great source of recurring revenue, and in an ideal situation, 80% of the revenue should be spread over a minimum of ten customers. When a business meets these criteria, selling is a viable option.
Accurate Financial Statements
The right (and only) time to sell a business is when your financial statements match your tax returns. Buyers don’t like running into surprises during the due diligence process, and inaccurate accounting can greatly delay the process. Our CGK advisors can offer advice on getting the company’s financial statements ready for due diligence.
When an owner has built a business, it’s only natural to want to build it even bigger. However, it’s easy for sellers to let greed get in the way. Knowing how to sell a business involves some tough decisions on the owner’s part, and these decisions should be made sooner rather than later. CGK Business Sales can provide advice and support throughout the process. Call or email us today for a free consultation or visit our website to learn more.
