Deciding whether to sell your small business is a complex process that impacts not just your professional life, but in all likelihood, your personal life as well. After all, you’ve devoted time, effort, and resources to build, grow, and promote your business.
While we can’t offer one single list of criteria to help everyone decide when they should sell or when they should hold, we can walk you through all of the critical things to consider when deciding whether to sell your business.
In this post, we’ll look at the entire process of selling a small business, paying particular attention to what factors make for a good opportunity and what might mean that a sale is a bad move. Here’s what we’ll cover:
- How to position yourself for the perfect sale
- Common reasons for both holding and selling a small business
- Questions to ask when deciding whether to sell or hold
- Pros and cons of selling a business in various scenarios
- What to do when you’re ready to sell your business
In the end, you’ll be equipped to assess your small business against potential sales opportunities, empowering you to make the best possible decision.
Considerations for selling your small business
Before you go about trying to decide whether to hold or sell your small business, you have to make sure both options are actually options for you. In other words, if you decide to sell, is your business in a position to be sold?
Selling a business is far from a quick and easy process. It could take months or even years to get your business ready to sell, screen potential buyers, and complete all the legal processes required to transfer ownership.
As we can see from this chart by MidStreet Mergers & Acquisitions, businesses worth more often take longer to sell.
To make it as easy as possible to sell your business quickly, prepare for your ideal sale as early as possible. Here are a few things you can do regularly to prepare for a potential sale.
Maintain your company’s records
From day one, keep detailed and organized records for every key piece of paperwork. This includes everything from your business registration paperwork to your latest cash flow statements.
Maintaining your records saves you a lot of time when you’re ready to transfer business ownership. You’ll already have a clear system for providing the new owner with everything they need.
Estimate your business's value
Once you decide to sell your business, you’ll need to have an official business appraisal. But in the meantime, it’s a good idea to calculate an estimate yourself. By understanding your approximate business value, you’ll be able to see when the timing is right to get a reasonable price from a buyer.
An official appraisal is complicated, but you can form an estimate. (Image source)
There are a few different ways you can estimate the value of your business. In general, you’ll want to consider the following:
- Your company’s assets and liabilities
- Current revenue streams and their projected profitability
- Market trends and economic projections
When valuing your business, it’s important to apply your real-world knowledge to the numbers you’re crunching. If you know that certain assets or revenue streams will change soon, but it’s not yet reflected in your paperwork, begin making that assumption yourself for the most accurate business value estimate.
Monitor economic and industry trends
A small business sale doesn’t happen in a vacuum. There are dozens of external factors that may impact your decision to sell or hold a business.
Keep an eye on both industry and economic trends that may positively or negatively affect you. This could be the emergence of new competitors, a change to policies impacting your industry, or national and global events that impact the business.
For a simple way to monitor search trends, especially if you’re looking to sell a web-based business, you can use a tool like Google Trends. In this example, you can see how interest in the term “AI” has been steadily increasing for the last five years.
If you have an AI-related business, you can see that your industry is on the rise, which may impact your decision to sell or hold. Training yourself to pay attention to these kinds of changes will make it much easier for you to spot the opportune time to sell.
Common reasons to hold or sell your business
Suppose you’re regularly positioning yourself to potentially sell your business according to the steps above. You’re prepared to face virtually any changing circumstance that could impact that decision.
But what circumstances might these be? To break it down, we’ll look use the example of an affiliate business that ranks the best nursing programs in the United States.
As a small web-based business, this site is an excellent example of commonly bought and sold businesses. It likely doesn’t have a large staff or many overhead costs, and it also requires minimal maintenance.
Reasons to hold on to a small business
For a business like the nursing program affiliate site above, it might make sense to hold onto the company for a while. Here are a few common reasons why you may want to hold off on a sale:
- To maintain your steady stream of income.
- To allow the business time to increase sales or revenue.
- To let industry or economic trends play out.
- To wait for a qualified buyer.
In the case of our affiliate website, holding on to the business makes sense as long as you have a steady revenue stream that is easy to maintain.
Once the business isn’t as lucrative or requires more maintenance to keep up with industry trends, it may be time to consider selling it.
Reasons to sell a small business
Let’s look at some general reasons why you might be inclined to sell your business.
- To mitigate risk in your finances.
- To get a guaranteed payout for the business rather than gamble on its continued profitability.
- To reinvest profits in a new business venture.
- To retire or otherwise remove youself from business operations
- To remedy cash flow problems or other financial risks.
- There are new competitors or changing trends they are unable or unwilling to keep up with.
The exact motivation for selling has a significant impact on the timing of the sale.
For instance, if your goal is to get the highest possible price so you can put that money toward other purposes, it’s wise to hold out for the right market conditions and business results to get yourself a good deal.
But if your business is losing money or in a financially precarious position, selling more quickly may be a lifesaver. Don’t rush to sell at the first hint of trouble, though, as many financial problems in businesses have other creative solutions.
For example, if you’re considering selling your business to fix cash flow problems, you could try reaching out to investors to raise funds instead.
Like the example below, a well-argued fundraising email can sometimes be a faster and more secure path forward for your business than selling right away.
It’s important to consider all your options before you commit to selling your small business. It’s not an easy decision to undo.
Questions to ask when deciding whether to hold or sell your business
Now that you understand the common reasons for selling or holding a business, you’ll be able to identify those factors in your decision-making process.
To help you best assess the state of your business and whether it makes financial and business sense to sell or hold, we’ve put together this list of questions you can use to guide your decision.
1. What are your current and projected profit margins? Are they improving or declining?
If your profits are increasing while your work input remains the same, don’t sell just yet. Maintain your business growth and try to anticipate industry changes. Then you’ll be able to sell your business at or near its peak.
If profits are declining, determine what you may be able to do to turn it around. Does your business need to increase marketing efforts, modify existing products and services, or develop a new business logo and branding to keep up with digital transformation?
Once you identify opportunities for change, decide if you’re willing to invest the time and money into implementing them. If you’re not ready to do the work, it might be time to sell to someone who is.
2. Do you see room for growth in your current industry/business model?
Consider how the future of your industry looks. Is there still a lot of growth and innovation, or are things becoming more stagnant?
If there is still plenty of room to grow, that’s not necessarily a sign that you should hold. You may not be willing or able to invest the resources needed to keep up with trends. But holding for a year or two while the industry continues to grow could mean a higher sale price down the line.
Do you still feel invested in your business?
This is perhaps the most critical question to consider. Running a business can be a considerable investment, and ultimately your interest in it has a huge impact on its success or failure.
If you’re no longer attached to your business and the work you do, it might be time to sell and move on. You can take the time to find a qualified buyer that you trust to continue the work you’ve already put in.
But, if you still care about the work you’re doing in your small business, don’t feel pressured to sell just because the market conditions seem favorable.
If that’s the case, hold on to the business for as long as it fulfills your professional needs and goals.
More questions to consider with regard to selling your business
Here are a few more questions to ask yourself when deciding whether to sell or hold your business::
- How is your business doing compared to competitors? Are you struggling to keep up with them, or are you outdoing them?
- Is your business prepared to adapt for digital transformation? Will your IT support team be equipped to handle the changes?
- Do you have employees that the sale of your business would impact?
- Are you looking for a way to free up time or money to put toward other business opportunities?
- Is the current state of your business a good fit for your skills, interests, and goals?
- Are your business model and industry quickly learned by newcomers or less experienced workers?
- Do you plan to stay involved in business operations after the sale? If so, for how long?
- Are you prepared for a potentially lengthy or expensive sales process?
Thinking through these questions and possible scenarios should help you identify the most important factors as you decide whether to sell or hold.
Pros and cons of selling your small business
Let’s take a few hypothetical scenarios for the affiliate website business example we discussed above. After explaining the scenario, we’ll analyze the pros and cons of selling the business for each one.
Scenario #1: Steady revenue, minimal work
Your affiliate website in the education niche has had steady monthly traffic and revenue for the past two years.
As the business owner, you spend about five hours per week maintaining and marketing the business, but you aren’t particularly interested in the work.
With the possibility of student loan forgiveness on the horizon, you expect to see an increase in revenue in the next few years, but you’ll likely need to increase your time commitment to the business.
A few pros of selling your business in this scenario are:
- More free time to spend on other opportunities.
- A cash payout you can use to reinvest or take time off.
- The possibility of a higher selling price due to changing industry trends.
A few cons of selling in this scenario are:
- The loss of a reliable income stream.
- The potential for high transaction costs and sale fees.
- The possibility of non-compete agreements that impact your prospects.
Scenario #2: Increasing revenue, increasing work
Your affiliate website has seen large gains in the past year, thanks to your significant investment of time and resources.
Last month yielded your highest revenue ever as the niche continues to grow, but you’re starting to feel burned out and aren’t as invested in the business anymore.
A few pros of selling your business in this scenario are:
- A high likelihood of securing a good price for your business, thanks to your commitment and its current performance.
- Liquid assets that you can use to take time off or search for a new opportunity.
- Ease of finding qualified buyers since your business is in an attractive position.
A few cons of selling your business in this scenario are:
- Missing out on potential future revenue growth because you sold too early.
- Losing the opportunity to see your business through to its peak.
Scenario #3: Declining revenue, emerging competitors
Your affiliate website has held steady in search engine rankings, but declining interest in the niche leads to lower traffic and revenue each month.
Strong competitors are emerging regularly, and you’re not sure if you want to seek an investor to boost the website or a buyer to take it off your hands.
A few pros of selling your business in this scenario are:
- Minimal worries about the future of your business.
- Guaranteed payment for your contributions to the company.
- The opportunity to stay involved in business operations without being wholly responsible for its success.
- The possibility of your business getting the boost it needs to keep up with competitors.
A few cons of selling your business in this scenario are:
- A lower payment than if your site was performing at its peak.
- Uncertainty or instability for your employees.
- Personal financial risk if the sale price isn’t as high as expected.
What to do when you’re ready to sell your small business
You may have decided that the time is right to look for a buyer for your company. Once you make this decision, there are a few things to do.
First, consider looking for a business broker. According to Quicksprout, “Business brokers help you get the best possible price and sell your business faster than you could do on your own.”
You’ll pay some brokerage fees, but considering the advantages, hiring a business broker is well worth the cost.
Next, you’ll need to return to the sale preparation steps from the beginning of this article and make sure everything is up to date.
Here’s a quick list of what you should consider:
- Compile and organize all of your business paperwork and financial records. Work with an accountant to make sure everything is in order.
- Record all of your company’s assets. This will help your broker or appraiser determine your business’s value more quickly and accurately. While physical assets such as computers are often the main focus, don’t forget digital and other intangible assets too. Online content like explainer or animation videos can be critical assets, especially if they bring in revenue.
- Work with your broker to find the right asking price. You don’t want to ask for too much or too little. Ensure you and your broker are on the same page about how much your business is worth.
The decision to sell your small business is entirely yours
One thing is clear: deciding whether to sell your small business is a complex decision influenced by dozens of factors.
From the business’s performance, to external market factors, to your feelings toward the company, there’s plenty to consider when deciding whether to sell or hold — and those circumstances can sometimes change at a moment’s notice.
If you prepare for the possibility of a sale from the earliest days of your business and keep an eye on both your business and its industry, you’ll be better positioned to recognize the right time to sell when it comes.
About the author
Joanne Camarce is a digital marketing expert specializing in SEO, ecommerce, and social media. She loves meeting new people and embraces challenges. When she's not wearing her marketing hat, you'll find Joanne fine-tuning her art and music skills.
