5 Hard Questions to Ask Yourself Before Selling Your Business
Selling a company can be the most exciting event of your career, or it can be the scariest. Ask yourself these questions to decide.
For many founders, selling a company is the ultimate accomplishment. The dream of starting something from scratch, growing and scaling the business, finding a buyer, and exiting is the stuff movies are made of. While it can be quite thrilling and satisfying, it can also be a dramatic and, at times, a traumatic process.
As a strategic growth coach, I've worked with dozens of companies on how to create and implement successful scaling strategies, and many of them have found successful exits. I've also been a founder and CEO myself and successfully sold my business. While they were all big wins, they came with a lot of complexity and anguish that could have been avoided.
Today, when I speak with founders about selling, I have a series of core questions that I ask them before we engage in any growth or exit planning process. These will uncover key issues that must be addressed and create a solid roadmap for the process.
1. Why did you start your business?
I always like to start by having founders reflect on why they started the business. For some, it was a random series of events that got things going. For others, it was a carefully thought-out plan with clear goals and ambitions. Regardless, it's helpful to uncover any motivations or dreams that inspired the company's start that need to be considered when planning an exit.
2. What are you going to do after you sell?
Too often, I see founders get into the heat of the sale process only to have an existential crisis when selling becomes a reality. They put their sweat, blood, and tears into this business, and the idea of letting it go can become overwhelming and unnerving. Without a clear plan for what you'll do after you sell, you'll subconsciously sabotage the deal.
Drinking pina coladas on the beach doesn't cut it. Founders need a new passion and project to work on. It could be a new business, or it could be a personal or social pursuit, but they need something. You need to know what that is before you begin to think about selling.
3. What's your minimum number?
One of the first exercises I do is to ask founders how much money they want in their pockets at the end of the sale. Many have no idea, in which case we have work to do. For those who have a number, we look into what it will take to get to that number based on the current company finances. For some, this might be a simple private equity play. For others, we might need to spend a few years growing and improving the business and finding a strategic exit before we have a hope of hitting it.
4. What are your acceptable deal terms?
Sales agreements cover a lot more than cash on the barrel. There are often ongoing earnouts, bonuses, reps and warranties, non-competes, employment agreements, and many other terms that can impact a deal's attractiveness. Knowing which ones are acceptable and which are not will greatly change the types of possible deals.
5. How can you increase valuation?
Generally, most businesses are not ready to be sold, certainly not at an optimal price. They need to be adjusted and optimized for valuation and handover. This includes simple things like having your books in order or complicated issues like client concentration and key person risks that will hurt valuation. Ideally, you want to have 12 to 24 months to address these items before beginning the sale process.
Selling a company is a major event and a huge accomplishment for any business owner. It can also be a nightmare and horribly stressful. While it's always a bit of a rollercoaster, getting these questions right will determine if you'll be enjoying the thrill with your hands waving in the air or if you'll be clutching the safety bars wishing you never got on the ride.
