We all know it’s not exactly easy to open a business in a competitive field. In fact, if it is too easy, you should question whether it’s worthwhile, in the first place, because you may end up in an overcrowded space. The things that stop competitors from entering an industry are the things that let the established businesses keep their piece of the pie.
While most people keep those things in mind…When your company starts doing very well, you may come to the point where you have to make a decision. Do you sell it and cash out, or keep your company and continue building it?
There are benefits to either option, but it can be difficult to figure out what is actually the better choice for you as an entrepreneur. This post will arm you with some valuable advice that you can turn to when you’re faced with the important decision of whether or not to sell your business.
Why Would You Sell a Company that is Having Success?
While it seems like a counterintuitive move, many businesses do sell, even early on, for a few different reasons. Some entrepreneurs open businesses with plans to sell from the start, the way that you would flip houses.
They build a business to maturity and sell it as soon it has enough value to attract buyers, after which time they can start or buy another company and turn around and sell that one for a profit. Obviously, it takes a special skill to do this, since you have to know how to select or create businesses that have a high value potential, and you would need to be extremely liquid because it might fail, more times than not.
In some cases, business owners never plan to sell, but all of a sudden they begin to see some offers coming in. That’s when you need to be extra careful and will need help to navigate the process, which we’ll get into later.
There’s something else to consider, too, which is growth potential. If there is a high growth potential for a certain kind of business, it may sell for a lot more because investors (buyers) know that there’s a much better chance that they will get a higher ROI. Other types of businesses may only be valued at 2-3 times over net profits because they have lower growth potential.
Short-Term vs. Long-Term Profit
The first rule here is not to jump as soon as you start to get offers to buy your company. Understand that if someone wants to buy it, then that means they can see great potential in it. Generally, when offers are coming in, this is when you should buckle down and really try to grow the business because the offers are proof that it has growth potential.
If you know how to sustain it and keep it growing, however, then there’s not much reason to let someone else have it, since you stand to make a lot more money in the long run if you keep it.
Many times, this is exactly why a business owner decides to sell. They don’t think they can grow it on their own. So the thought is, why not make all you can off of it now by selling, instead of eventually letting it fail and possibly losing money.
Be Sure It’s a Serious Offer
Especially for a first-time business owner, it’s tempting to sell as soon as you get an offer, but there are some important points to remember during that crucial time. Make sure you think carefully about your decision before taking any action.
Firstly, a lot of venture capitalists and investors put out feelers just to see if you’re open to selling, and they may not even be ready to give you a real offer. If it’s a large company looking to make an acquisition, you have to remember that, while they have probably decided they want to buy a company in your particular industry, they will also be looking at your competitors.
This is not to say that you shouldn’t consider their offer, but you should definitely only give them as much detail as you are comfortable with because you’re probably not the only company they’re considering buying. If they don’t buy yours but buy your competitor’s instead, they could have a lot of details they can use to compete with you in the future.
Points to Consider When You Sell
So, if you make the decision to sell, here are some essential tips that you can use to move through the process. It’s a very exciting time! Just try to cover all of your bases to make it a lucrative and rewarding experience, not a regrettable one.
First, get a good lawyer who is experienced with acquisitions to assist you with the sale. You don’t want to end up paying way more than you need to, like unnecessary taxes and other costs, and you absolutely need help to navigate through this.
Another thing you have to do is protect your employees through the transition. They will most likely be very nervous about how their jobs are going to change or if they are going to lose them altogether. The best way to approach it is to be as transparent as possible with them about what is going to happen and what they can expect after the sale.
Furthermore, do you want the new owners to keep your company’s current name? Are there other stipulations you want to make, that you would like the buyers to honor? You will need to have that discussion with them at some point and put whatever you can into the final contract.
Points to Consider if You Decide Not to Sell
Choosing not to sell your business is a gutsy move, but not to worry because many times it’s the right one. It’s not easy to turn down money when you get a serious offer, which would allow you to cash out and set yourself up with a pretty sweet deal, for now; however, sticking it out and continuing to grow it yourself can yield a lot more revenue in the long-run.
The only thing to keep in mind is that if you don’t already, you’re probably going to have a new competitor in your space when the buyer buys up someone else and scales up their business. That’s not necessarily a bad thing, just something you should prepare for.
If you know that you have a valuable business with the potential to scale up and have decided to keep it, then you should resist the temptation to sell it, no matter what.
Stephanie is the Marketing Director at Talkroute and has been featured in Forbes, Inc, and Entrepreneur as a leading authority on business and telecommunications.
Stephanie is also the chief editor and contributing author for the Talkroute blog helping more than 100k entrepreneurs to start, run, and grow their businesses.