How To Know If It’s Time to Sell Your Business?

Every entrepreneur eventually needs to answer the question, “Is it time to sell?” It’s a really, really, tough question. It is much harder to answer than, “Should I start or buy a business?” Only those who have started and built a business from scratch know how agonizing it is to face this decision. And, unfortunately, it’s a question that only you can answer. It goes to the heart of everything you have worked for. Indeed, it goes to the heart of who you are. So much of your identity as an entrepreneur and business owner is wrapped up in “your baby.” I’ve been there.

I admit to being old school. I had seven businesses and was on the launch teams of several others over a 30-year period. Not once did I start a business with the “exit” in mind, even when they were financed by angel investors and venture capitalists -- who were clear from the start they were in it for the exit. I never cared about the exit. I knew it would take care of itself if my team executed well. I wrote about it in this post: https://www.dhirubhai.net/pulse/should-you-start-build-company-exit-mind-michael-o-donnell/.

That all said, there comes a day of reckoning…the day every entrepreneur must decide if it is time to sell the business. 

There was a time when I had to sell my business because of personal or financial reasons. There was a time when I was forced to sell my business because those who held a controlling interest (the investors) decided it was time to sell. There was a time when it was smart to sell my business because the timing was ideal. There was also a time when I simply walked away from my business because I hated it. 

I’ve personally been on all sides of this life-changing decision. 

So, now it might be your turn, no? You’ve been thinking about it. How do you know if it’s time to cash out of your business?

The first thing to acknowledge is that you are not your business.

You and your business may have divergent interests and motivations. This is especially true if you have employees and outside investors who will be significantly impacted by the decision. Take a look at the Timing – Motivation Matrix below.

Which quadrant do you fall in? Place a dot where you and your business are. The dot is not likely to be in the middle of a quadrant, but high or low and to one side of a quadrant or the other. Once you visualize where you and your business are, you can sit back and thoughtfully mull over the trade-offs and the best way to approach this decision.

Founder Ready – Business Ready

If you are any where in this quadrant, then the decision is a no-brainer. 

The timing is good for you and the business. The decision is decidedly, “YES,” so move forward with getting everything ready. Deciding it’s time to sell and being ready to sell are two very different things. For more on getting ready, take the free Readiness Assessment: https://irev.biz/readiness-to-sell/

Founder Not Ready – Business Ready

If you are anywhere in this quadrant, this where you find out what you are made of as a founder-CEO. 

This is typically the case when the business has achieved an excellent valuation and market position. The investors want to cash out, but the founder does not. Conversely, the business has not done particularly well and is lumbering along – not growing and unable to raise capital to grow. Investors call these companies “the walking dead”. They feel like stuck holders. They want out at any price, but the founder remains hopeful (or has too much pride) and wants to continue to slug it out. 

Either of these situations can be a contentious time and lead to all kinds of nasty politics and power plays. It usually ends up being a lose-lose for the founder and the business. It takes a strong board to navigate these waters. To salvage value, either the founder needs to go, or the investors need to go, or the business needs to be merged or sold.

This could also be a situation where the founder knows the business has peaked but does not have to consider the interests of partners or outside investors. The market timing is good, the company is getting all kinds of offers, but the founder is not ready to move on. In this case, it is best to take some chips off the table. The founder can sell a minority interest and continue at the helm, hopefully to reinvent and re-energize the business for the future. 

Founder Ready – Business Not Ready

If you are anywhere in this quadrant, your decision has already been made, you are just going through the motions of running the business (and probably not very well). 

This is typically the case when the founder is burned out. S/he does not have the passion for the business s/he once had. Perhaps the business has outgrown the founder? It requires a lot of grudge work – processes and legal headaches and management blocking and tackling and, ugh, bureaucracy. It’s just no fun anymore. The founder is just not "in it" anymore, but the timing to sell the business is not good for any number of reasons. 

In this case, the founder has two good options and one bad one. S/he can groom a replacement and step aside, perhaps staying on the board but not running the day-to-day. S/he can take an internal buyout from the partners or investors and get on with life. The bad option is to do nothing and keep going through the motions, presumably because s/he does not want to let others down or needs the job. Lots of founders end up choosing this option by default (no decision is a decision) and their business invariably continues to lose value to the point where it is forced to sell. The #1 killer of businesses is disengaged leadership.

Founder Not Ready – Business Not Ready

What are you doing reading this article? Get back to work!

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In summary, how do you know if it’s time to sell your business? When the timing is good for both the founder/owner and the business and all its stakeholders. It may also be time if either the founder or the business is ready. A good founder/owner serves at the pleasure of the board, the investors, and the other stakeholders of the business. Do right by your business and the exit will take care of itself. It will tell you when it's time.