3 Must-Ask Questions When Selling Your Business

Did you know that the moment you decide to sell your business could be the moment you secure your financial future or set yourself up for regret? Let’s ensure it’s the former.

Consider Sarah, who turned a small café into a local favorite. After years of hard work, she decided to sell but received low offers. In the years prior, she hadn’t pondered the critical questions about what her business was worth and when would be a good time to sell.

Whether you’re aiming to create your next masterpiece, gain financial or time freedom, or retire peacefully, Sarah’s exit experience emphasizes the need for preparation. Many owners either postpone thinking about their exit or skip thinking about it altogether, leading to rushed decisions or seller’s remorse (yes, that’s a thing!).

So, let’s make sure you’re well-prepared to make the most important decision of your life as a small business owner.

Question 1: What is my business worth right now?

Determining your business’s true worth is key to a successful exit. Since M&A experts focus on larger enterprises, you’ll likely need to manage the initial valuation yourself. Use a free, reliable online tool (like this one, from bizval founder Graham Stephen) to compare your business against recently acquired similar ones in your industry. A valuation is not just empowering but crucial for strategically planning your next steps.

A business in the professional education space I worked with was turning over just above $1 million a year. Initially, they underestimated their recurring revenue streams and customer loyalty. After a thorough valuation, their business’s worth increased by 25%. This valuation attracted more serious buyers and set a new benchmark for their selling price.

Question 2: How much do I want when I sell?

This question is the important one for sellers. Especially if they haven’t been saving much or paying themselves a steady salary. When answering the question on how much you want to sell for, consider calculating two different numbers:

• Walk Away Number’: the amount of money you receive from the sale, after you’ve paid taxes and expenses. If you’re feeling the urge to start your next entrepreneurial masterpiece, selling for your Walk Away Number might mean you’re doing so at your prime, filled with energy and ideas.
• ‘That Number’: the amount of money you need to secure your lifestyle for the rest of your life, along with other specific financial goals. If you want to free up cash to pay off debts (like your mortgage), start a new project, reinvest it in other assets, or enjoy life unburdened by any financial obligations, you want to sell for that number.

Question 3: How much gas do I have left in the tank?

After answering the first 2 questions, 93% of small business owners come to the conclusion there is a gap between what their business is worth and what they want to sell it for. So the question arises as to how much energy do you have left to close the gap? Apart from the numbers, your personal feelings and energy level are important to navigate towards a life-changing exit. Read about the 7 signs it is time to sell your business.

If life’s curveballs are coming at you fast (health issues, a divorce, or a move) you might not have the time or the energy to close the gap between your valuation and that number. When that happens, selling is not just an inevitable choice, but a necessity for your well-being.

If retirement is on the horizon, you probably have a bit of energy left to push the gas for a little longer, multiplying the value of your business as much as you can, only to enjoy the leisure time, new hobbies, and your comfortable and fulfilling retirement you have longed for.

If your business is no longer bringing you joy, that might be a sign to step out too. Like Maya, a successful entrepreneur earning around $1.2M a year. She felt unfulfilled despite her financial success. She had enough energy left to make 3 crucial changes, multiplying the value of her business as a result. When she sold a mere 2 years later, she got That Number (and then some more), and could honor the desire to create her next masterpiece.

Conclusion:

Selling your business is a significant decision. This article highlighted 3 key questions to consider when pondering selling. Remember, it’s crucial to start asking these questions early, enabling you to sell on your terms and plan for what’s next.