For most private owners, a substantial portion of their net worth is "tied up" in the value of the business, and knowing when to sell your company can be an intelligent yet complex move. Knowing the signs that signal it's time to sell or prepare to sell can help you make the most of this decision and maximize the value you receive from your sale.
Here are eight telltale signs that you should consider selling your company.
1) Shifting Market and Industry Trends
Changes in the market or industry can have a dramatic impact on the value of a company. When industry or market trends move away from your company's products and services, it may be time to begin searching for buyers. Pay close attention to any shifts in customer demand or technology advancements that make your products or business model obsolete.
2) Technology Advancements
Technology use or innovation by competitors or new entrants into your market helped them change the standard operating model. A shining example is ride-share companies and their impact on the Taxi Industry.
New technologies such as AI, Automation, Robotics, and Data strategy are on the horizon for every function of every industry and are rapidly changing the basis of competition. If your competition or new business models are gaining the edge, you might ask yourself if you know how complex and expensive "catch-up ball" is and if you're in a position to play.
3) Business is Good
Selling during a period of business growth and strong profitability makes your company more valuable and appealing to prospective buyers. Therefore, the best time to sell is when your company's bottom line over the past three years looks great and industry growth predictions are robust. It also makes the process much easier and raises the chances of multiple buyers competing for your company. You may consider the adage "sell high."
4) New or Increasing Regulations
Government regulation of the U.S. economy has expanded enormously over the past century; some regulations can significantly raise business costs, slow growth, and impact your competitive position. Monitor regulatory changes that render your business non-compliant or substantially increase the cost of doing business, and determine whether it's time to get ahead of the curve and exit the industry.
5) Slowing growth trends
As markets and industries change, so too should your company. Investing in new products, services, and technologies can help you remain competitive. On the other hand, if you cannot keep up with advancements or changes in customer demand, it may be a sign that it's time to sell your business. Look for opportunities to invest in research and development (R&D) or joint ventures with other companies to keep up with market trends — if the gains don't outweigh the risks involved, it is time to consider an exit strategy.
6) Shifting Customer
Another clear sign that it's time to sell your company is when customer loyalty and retention decline. Keep an eye on sales trends over time to determine if customers may be shifting from your product or service towards another. For example, suppose you are no longer growing new customers, and current customers are turning away due to technological changes, the market, or the competition. In that case, it could be time to ask yourself, "is this the right industry for me"? Depending on the size of your business and its current trends, you may find that selling can provide a better return than continuing operations.
7) Significant competition entering your market
It's important to know if the competitive landscape is evolving and whether new players are coming in that could potentially outpace you. Monitor the market and observe any significant industry news, especially when new products or services come into play. If your competition is investing in technology, creating new features, or moving into your market, it may be time to consider selling your business before getting left behind.
8) Change in management dynamics
Many businesses depend on their leaders and founders for success. But if your company's leadership is changing, it may indicate that selling the business could be worthwhile. Likewise, if management changes are occurring within your organization—such as an executive leaving or a new partner coming into the fold—it may be time to consider whether you need to sell to remain competitive and profitable in the market.
We work with Private Business Owners daily to provide strategic insight and ideas to help clarify the many options available in their specific industry. We partner with owners helping to identify and make introductions to proven trusted partners, and there are no fees associated with our services. If you are interested in a discussion, please let me know.