How to know when to sell your business?
Learn the best time to sell your business - when you are able to release the full potential of the asset you have built, and in turn, continue your legacy.
By Chris Hodgson
4 minute read
I was speaking with a Founder yesterday who had a clear plan to grow their business to 10 times the size it is today. He could see the path to get there, and felt confident that it was achievable. His only hesitation was that he didn’t know if he had the energy to continue. Honestly - he sounded exhausted.
This Founder had been building their business for years and had successfully managed through COVID restrictions and even pivoted the business into new areas which had led to accelerated growth. He had achieved amazing things, but they had taken their toll, on his health, and personal life.
As a Founder myself, I know the passion and dedication that comes from building something from scratch. I also know the incredible amount of work - it’s manageable in the short term, but unsustainable (for most people) in the longer term.
So how do you know when you’ve had enough? How do you know when the time is right to sell a successful business?
At BEAN Partners we tend to see three reasons that Founders have decided to sell their business.
1. The Market is ‘hot’
2. They no longer have the energy to continue to grow the business (and haven’t been able to hire someone to do it for them)
3. They realize that they need more assets, or capabilities, to really achieve their ambition.
REASON #1: If the market is ‘hot’
“Everything has a price”, or so the saying goes.
The same applies to a business. In a ‘hot’ market the price that an acquirer is willing to pay may be enough to cause the most dedicated Founder to pause and wonder - “Would I be crazy not to sell now?”
This was the case in 2020 and 2021. Investors and buyers alike were paying very high multiples for businesses on the belief that the world had changed and that those businesses would continue to grow at a rapid pace.
This is clearly not that case today, at the start of 2023. Outside of a few key industry verticals (such as Generative AI), most industries are planning for the most predicted recession in our lifetime and company valuations have all but collapsed from where they were 2 years ago. The market is clearly NOT ‘HOT’ today and it is the rare Founder who would be selling for this reason in 2023.
REASON #2: No more energy to continue
The second reason is the situation with my friend. He has struggled to find a CEO whom he trusts to lead the business so that he can step back. To be honest, even if he had, I think he would struggle to let go.
As he gets older, he is questioning whether to continue. As a result, despite the current market conditions, for him, now is a good time to sell. It is time for him to realize the value he has created and take the next journey in his personal and professional life.
REASON #3: Full company ambition is best achieved if the company is owned by someone else
The third reason to sell is when the Founder recognizes that a smaller piece of a bigger pie is better than a big piece of a small pie.
We see Founders in this situation a lot. They have built something very valuable, but also recognize that a lot more value could be created by combining their assets with those of another company to really release the potential.
These business sales are often very strategic and involve a lot more work to find the right partner who really understands your assets and how to combine them with their own to maximize the value.
The good news is once you find these buyers - they are always willing to pay more than the market price for your business because they can create value that others can’t create.
Often the Founder retains a small stake in the business, or in the acquiring company, so that they can benefit from the value that is created.
It is a lot of work to manage a strategic sale such as this. Most Founders cannot do it on their own. It’s where we specialize and we love making these difficult business sales feel smooth and simply for our clients.
Give me a call if you’d like to discuss how we can help.