When to sell your business

I have recently gotten questions from several entrepreneurs about when is the best time to sell a company. Of course, it depends on the entrepreneur’s vision, the market conditions, and the potential options.

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Entrepreneur’s vision

It all starts with what is your vision? Are you excited about the opportunities ahead for the business and want to keep going? Or are you burnt out and ready to move on to the next adventure? If there is still a strong passion inside, why not think bigger and continue moving forward.

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Market conditions

Timing the market can be difficult, but are you in a frothy peak market or a down market? If it appears more of the peak market, know that valuations may be above the historical mean and exiting now could be a good outcome. If you are in a down market, know that valuations may be below the historical mean so would you rather wait until market conditions return to historical multiples? It is hard to time a market, but it has been said the best way to make money is to sell early.

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Potential options

There are many vectors to this one. First about the potential acquirer - are they strategic or financial and do you have a preference as to the home for your business? What does the “exit” look like - all cash up front is very different and far more advantageous than complicated earnouts or stock in the acquiring company. Have you run a formal process with multiple bidders to help with negotiating leverage, or did one company reach out and make an offer? How serious is the potential acquirer or are they just fishing for information? There are many variables here, but better outcomes are usually reached when you have “Good Choice A and Good Choice B” vs. choosing from one uncertain offer you are not crazy about.

Know that even entertaining acquisition offers takes a lot of time and energy away from the business (which in turn distracts from growth and valuation). Be sure this is a path you want to go down before you get sucked into the details. One other wrinkle that is now more common is for founders to take some money off the table in a secondary transaction. That helps you get some cash in your pocket, yet continue on towards the bigger vision without having to sell the entire company.

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What do you think? What are the signs that its time to sell a business?