6 Things to Ask Yourself Before Selling a Startup Key points of reflection that will help determine if this is the right time to cash in on your business brainchild.
By Jacob Dalton Edited by Matt Scanlon
Opinions expressed by Entrepreneur contributors are their own.
Like a great many, you may be an entrepreneur whose ultimate goal is to create a company worth selling, and why not? I have both sold businesses and consulted with individuals who had their net worth increase ten-fold in the course of such a transaction. It is, however, both a stressful and rewarding endeavor — one that involves numerous considerations.
Here are a few key ones.
1. Is the startup transferrable?
Selling a business is only feasible if it can function without you. If it does not have systems or a crew in place that can do so, it's probably not ready to be sold, as you will essentially be selling a dud. Another consideration if it can't function in your absence is whether you are emotionally ready to let go; you may have become attached to it, regardless of your goals.
A corollary consideration in transferability is that many companies need a lot of micromanagement to get through the day, which is okay for a startup, but is a major turnoff for buyers. It means the bulk of the work is still left to be done by a buyer who is also likely aware that some of the highest multiples come from hands-off businesses. These people want a company that's already running smoothly. If you cannot sell them that, you are not ready. In my experience, the more hands-off a business is, the faster it sells.
Related: How to Make a Successful Business Sale, in Six Steps
2. Is it sustainable?
Buyers are looking for companies that not only have been successful, but ones that will continue to be profitable — this upward trajectory is critical to getting a good price. Not only should systems be in place to support growth, but include plans to scale up. If those aren't present, create them.
3. Will another leader do well?
Even a well-developed and established company may be difficult to sell if you are the only person who can lead it. That can be the case for many reasons, from the contacts you have to how your team views you, but if a new owner will be hard pressed to fill your shoes, you have some sales-prep work to do.
Related: Trying to Sell Your Business? Skipping This One Step Will Leave a Fortune on the Table
4. Is it the right time?
As with just about any product, there is a right and wrong time to sell. Generally speaking, you want to sell a company that's ready to expand, which usually requires an overall economy that can support growth and the interest of investors. Selling at that point gets you a much better valuation, because the future looks bright. You also need to consider what direct competitors are doing. For example, you may get better offers if you sell when the competition is trying to consolidate the market.
5. Is a partial exit acceptable?
In many cases, you do not need to sell an enterprise in its entirety. A partial sale, wherein you only liquidate some shares, is also possible. This allows you to retain some say in a company you have built, while relieving yourself of some of the greater burdens and responsibilities. You also gain more free time to pursue other ventures and opportunities.
6. Is it time to ask for advice?
If you are not certain whether the time is right to sell, or about any other of the above questions, reach out for advice — particularly to a financial advisor if you have not sold a business before.
Related: Keep These 4 Things in Mind Before Selling Your Small Business
Selling a small business can be emotionally and intellectually difficult, but it's far from impossible. If that's your exit plan as an entrepreneur, you need to put in the effort to prepare a sale that's both as seamless and profitable as possible, which will make it easier to pivot into new ventures, whatever they may be.
