When the owner of First Research sold the business to Dun and Bradstreet for over $26 million around 2006 everything seemed good and the decision looked great at that time. However, over a decade later the owner had already regretted the decision so many times. Even for advisers whose chief aim is encouraging small business owners to sell, their interest in mutual success compels them to advice any company owner to give it a thought before finally putting ink to paper and selling the business. At times backing down, give it a few more years or just holding out might be the perfect strategy at the moment.
Selling your business now might not be the best return on investment strategy, particularly if you know you could give the company a few more years. Here are different reasons why you should not sell your business yet.
Lacking financial advice
Any small business owner might be great at building a company and running the business but lacking in sound financial advice. Selling without in-depth knowledge of what acquisitions and mergers entail, what’s at stake, taxes that come into effect among other critical areas of selling a business can leave them at a disadvantage. Understanding the entire process systemically is vital before you even entertain the thought of selling.
You’re about to lose your passion
After spending years, at times decades, building and growing your company the day you sell will be the biggest accomplishment of your life. However, once you’ve been paid and the money is lying in your bank as you figure out what you need to do next, reality will begin dawning on you. Regret will probably follow as it dawns on you that you didn’t just sell your company but your passion. Whether you made a great deal or not, the reality of what you just did might come in too late. Holding out might be a good idea for now.
You lack a management team if any
If you’ve followed business buyers closely and what they consider most, then you will conclude like many out here that a management team is crucial. Lots of buyers are moved to buy if there’s a working management running the company whether the owner is there or not. Not many of them are willing to spend their money and time running the business all the days of their life. The value of your business to them will be influenced by the strength and efficacy of the current management. If you don’t have a proper management team that runs your business while you’re away in pursuit of other interests you probably shouldn’t think about selling, yet.
Uncertain future of the business
If you were asked what you think the future of the company is, what would be your answer? Do you have an idea where your business is headed? Do your current management team and key staff members have an idea where the company is headed? How is the industry your business is in? What are its growth prospects? If you’ve never given such questions a thought it’s probably too early and a mistake to sell your business.
They’re important to consider and articulate concisely if you’re to gain much from your investment and ensure that the hard work put in doesn’t go to waste. Your company vision need to be so clear and the future not one uncertain mesh of confusion but well-articulated.
If your business is of any value, then the cash flow is sustainable and you’re not just making money but projecting to do so for a long while. A business buyer will be highly interested in a company if the cash flow is sustainable and encouraging, which is also an indicator that determines the value of any business. For instance, very few business buyers will be interested in a business where earnings seem to come from a small segment of the company, a very few number of clients or if the company lacks long-term customers and contracts. Essentially, if these are lacking the value of the business will dip and selling might not get you much.
Related: Is Your Business Sellable?
Clear procedures and guidelines
Also related to a working management, every business needs to have very clear, well communicated procedures, guidelines, strategies, company culture and business plans. It doesn’t matter whether you’re a mere small business owner or own a gigantic company; if these aren’t well articulated, written down and clear for everyone the business will collapse if you ever leave. A good indicator of this is whether your employees and management keeps on calling you all the time for clarifications when not around. If this is the case, perhaps selling your business might have to wait until your staff is empowered to handle things effectively well even when you’re gone for weeks or months.
Mind the work force first
If you’ve spent decades in your business you might have noticed that you’re aging just like your staff. In most cases, almost half of all employees today will hit retirement age in about a decade. Yet, it is employees who’ve been a part of the company for over a decade who could still be the cornerstone of the organization. Most of them could leave in a few years and a huge gap will be hard to miss even by outsiders. You should reconsider selling your business yet if you’ve an aging workforce mostly and haven’t taken the time to build one for the future. You need to see what potential business buyers see when they look at your current workforce. If it isn’t a driven, vibrant young workforce you might not get value for all your hard work.
What hard assets can you pinpoint?
If you cannot pinpoint any hard asset your business has amassed you might want to reconsider selling your company. This is especially true for businesses that offer services mostly. They’re usually driven and built by existing customers and ability to make new sales, which means cash flow isn’t a problem at all. However, the value of the business might not be much beyond cash flow, which could be really improved by tangible company assets.
Confusing business structure
Most business owners started their investments as sole proprietors or had a spouse or relatives as shareholders. However, due to the lucrative nature of the industry the company may have grown exponentially and shareholders, investors, assets and other entities added into the business complicating the organizational structure. If you need to read a chart or corporate breakdown of your own company to keep track chances are potential business buyers will have a problem with it.
As your business grows you must ensure that the corporate structure remains clear and easy to grasp. All the liabilities and assets, shareholders, among others should be clearly seen and identified. Remember potential company buyers would want to know what liabilities, assets among other things they’re getting themselves into. Confused, complicate corporate structures might be hard to sell.
Lacking value proposition
It’s really hard for some business owners to give reasons why they think their companies are special. Clearly elucidating why clients keep on returning for more and work with their business might not be easy. However, it’s very important to understand why your business is special and why anyone would be interested in buying it. It could be the location, demographic, experience, uniqueness of goods or services, innovation, among others. The important thing here is ensuring that it’s not just one little thing giving you the head start for now, such as price because it mightn’t be a reliable value proposition.
Once an interested buyer has completed signing the non-disclosure agreements the first thing they’d want to get their hands on is the company’s financial statements for the last few years. If you cannot provide the current or latest financial statements then there’s a huge problem. You should also be able to offer an explanation of the particulars appearing on statements. If you’ve to take a lot of time just to clean the statements up and know what is what, then there’s a cause for worry and probably too early to think about selling your business.
What if buyers want to see your financial statements that have been audited, would you be able to provide them fast and without a problem? Inaccurate, incomplete, haphazard or confusing statements cannot sell.
Lots of relatives on payroll
You could have a problem with potential buyers if majority of your staff are relatives or close family members. Essentially, once the business is bought the buyer might insist that all your family members resign. Before you decide to seek buyers, ensure your family members aren’t interested in purchasing the business themselves. They should also be very informed on any eventuality. You might be surprised to know they were interested all along in owning the business, investing in it and keeping it within the family.
How do your growth prospects look like? If there’s one thing that can sell any business it is growth. Buyers will come with a keen eye for growth prospects and long-term cash flow opportunities. How is the industry? Is the growth dipping or stagnated? You definitely need to know. Note that potential buyers seek to enter a new budding market or purchase strategic assets. Even if growth or expansion might not be on the cards for now, you’re better off not selling the business now; spend the next few years positioning it for growth.
Of course there are many other reasons why you shouldn’t sell your business yet. However, if the only reason you’ve is the fear of the unknown or wondering where you’ll be spending your time after you sell then you should probably let it go.