When is the right time to sell a startup? That’s a question we hear from a lot of founders, and it’s crucial because timing can have a huge impact on the transaction process. In fact, understanding when to sell your business should be a top priority if you want to plan a successful (and profitable) exit.
From our own personal experiences with exiting startups, we know the process can be confusing. While there’s no one formula that works for every company, there are some commonalities that can help you. Here are some questions to ask yourself to determine if it’s the right time to sell your startup.
Do You Have an Accurate Business Valuation?
There’s no point in selling your business if you don’t know what it’s worth. That’s a good way to wind up settling for less than you should. If you don’t know what your business is worth, you won’t know what represents a fair price.
That means if you don’t have a business valuation, you shouldn’t be selling your business. Instead — since valuing a business can be tricky at the best of times — you should hire someone to value your business and decide if it’s worth selling or if you should wait.
Does Your Business Have a Solid Reputation?
Your business doesn’t necessarily need to be turning a huge profit to be sellable. In fact, sometimes a business’s reputation can be enough to make it worth buying even if sales (and profits) are down.
In other words, if you’ve built a strong brand that people trust, it may be a good time to sell your business. Branding and reputation are intangibles that can add to the value of a company and make it attractive to buyers. Haven’t spent much time building your company’s reputation and authority? It may not be time (yet) to sell.
Is Your Business Poised for Growth?
It’s not uncommon for someone to acquire a company despite financial troubles and lack of profitability, but the circumstances need to be right. Primarily, the prospective buyer needs to see the potential of profit in the future.
If you’re poised for growth because you’ve got a product that’s taking off or the promise of big orders in the pipeline, it can indicate a good time to sell your business. Any potential buyers will take the likelihood of future profits into consideration when making an offer — and that can lead to a profitable exit for you.
Is the Market for Businesses Like Yours Hot?
In any sales situation, the law of supply and demand applies. You might have a fantastic business, but if the market is stodgy, it’s unlikely that anybody will be willing to buy your company. Even if it looks great on paper.
By contrast, in a frothy market, even companies that aren’t in great shape can sell at peak prices. The demand is high, which means you can ask a higher price than you might be able to in other conditions.
This is one of those questions you can’t control, but it’s something every entrepreneur should be thinking about. Ignoring the market is a good way to miss out on a sale. And remember — markets are shifting constantly. A slow market now could turn into a favorable one tomorrow.
Do You Have a Unique Product?
Innovation is one of the biggest drivers of startup sales. Even in a less-than-ideal market, a business with a terrific product that people want can still grab a top price.
Sometimes, entrepreneurs can turn a significant profit even if they haven’t done much to build their business reputation or establish a strong brand. When that happens, it’s inevitably because they have a product that’s so innovative that investors can’t resist it — and they’re willing to overlook issues that might otherwise hinder a sale.
Do You Have a Great Offer?
So far, we’ve focused on the indicators that it might be a good time to sell, but sometimes the decision is a simple one. There’s money on the table and it’s an offer that’s too good to turn down — a Godfather offer, as we like to call them
We’d be the first ones to tell you that startup sales can be as much about luck as anything else. You may not have planned to sell your company, but if the right offer comes along you should consider it. After all, it may be an opportunity to turn a quick profit that you can sink into your next venture.
Overall, selling a startup is as much an art as it is a science. There’s no magic formula to use to determine if you should sell. That said, the questions we’ve asked here may help you determine when to sell your business.
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