3 Questions to Ask Before Selling Your Business
Running a business can be exhausting. It's no surprise that even the most successful entrepreneurs feel at times that cashing out – selling the business to someone else or another company – might be the best way to maintain their mental health as well as their financial well-being.
But is selling a business worth considering during a weak economy?
The answer, according to experts, is a resounding yes.
"I could sell a hula-hoop manufacturer if it's priced right and marketed professionally," said Philip Pearl, a Ramsey, N.J., business broker and accountant.
To get the best deal on your business in any economic environment, ask yourself these three questions:
1. Will my business be as successful when someone else owns it?
The success of certain businesses is tied unalterably to their owners' personalities and customer relationships. "Mary's cookies may be great, but can Tom sell Mary's cookies? If not, her business is less valuable to a buyer," said Pankaj Amin, a New York-based entrepreneur who purchased a telecommunications business and sold it seven years later.
Mary may change the equation, though, by agreeing to continue running the business after selling it. Self-employed professionals such as lawyers may find this method useful, said Peter Raffalski, a vice president at Gibraltar Private Bank & Trust, based in Coral Gables, Fla. For example, a small law firm that specializes in bankruptcy proceedings might garner the attention of a larger firm that focused until recently on real estate closings.
2. How will the weak economy affect my business's value?
What a business is worth – always a source of contention between a buyer and seller – is usually settled around a multiple of the business's earnings, Amin said.
Even businesses whose sales have dipped recently may prove an attractive acquisition target, even more than some businesses that are suddenly enjoying brisk sales.
Pearl said that when a business broker and client look into buying such a business , they try to determine whether its fortunes will improve in better economic times.
Owners who find a potential buyer willing to take a long view of earnings should keep in mind that such a view cuts both ways: A short-lived sales surge won't mask the years of anemic growth that preceded it.
Pearl has worked with such a business. "Their growth spurt was so high that if I were to try and market the business based on this last year, buyers wouldn't accept it," he said.
3. Would selling help me meet my personal goals?
This is one of the key questions Gibraltar's Raffalski asks of business owners seeking his advice. Preparing to sell is wise for owners who seek to retire soon and for entrepreneurs who specialize in starting a business, bringing it to profitability and handing it off, Raffalski said.
For other owners, however, acquisition offers can lead to decisions they'll later regret, Raffalski said.
"Let's say someone is running an insurance business," Raffalski said. "He receives an offer to buy that he wasn't expecting. He thinks to himself, 'What would I do if I don't want to start a new business?' He can't just pick up where he left off. Sometimes the timing is wrong for personal reasons."
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