The business growth rate is obviously a huge factor in a decision to sell or not to sell your business. This post is next in my series “To Sell or Not to Sell Your Business”. Obviously, the higher the sustainable growth rate that has been demonstrated by the business, the more value will be created by your business for yourself or for a future owner. As I have mentioned, my natural bias is to not sell a good business because they can be difficult to find. This is even more so when a strong business is growing. This is pretty apparent and logical.
In addition, here are some other things to think about:
- Growth is critical to selling your business. It is much easier to sell a growing business. If you are planning to sell, it is highly preferred to sell when you have a several year track record of sustainable growth. On the other hand, if your business is declining, it is going to be very difficult to find a buyer that is comfortable with the decline and be able to possibly improve the situation. Buyers need growth to take the risk in buying a company.
- Pay attention to the trends in your annual growth rate. Is your year-over-year growth rate increasing or declining? Try to understand deeply why the trend is accelerating or why it may be declining or why it has been steady? You will want to be prepared to get the buyers excited about the accelerating growth rate or comfortable with a declining growth rate.
- Does future growth require the same things (resources, strategy, skill set, etc.) as historical growth? Sometimes, you will be able to execute the same growth strategy well into the future. Other times, future growth will require an investment that will diminish financial results for a time or require a different strategy or skill set to implement.
- Review the data around growth rates. In the process of owning your business, you probably know the key internal metrics that have driven the growth and success of your business. And, you probably have kept your eye on some external data that impacts your industry or your business. What is the data telling you about the future? Will the trends that are supporting your growth maintain themselves or not?
- Listen to your intuition. To me, one’s intuition is your mind applying your business and life experience onto the present situation. It should be listened to. If all the data is telling you one thing and your intuition is telling you another, it is worth pondering the disconnect to try and determine why your intuition is different.
- If selling, have an attractive, untapped growth initiative “shovel ready”. If you want to sell, I think it is helpful to have an underlying, sustainable growth rate but also have a new attractive growth initiative that has evidence of success but has not been fully realized. This allows a buyer to envision an upside scenario that every buyer yearns to find.
- Larger businesses receive higher multiples. Another positive to retaining ownership of a growing business is that larger businesses get a bonus of receiving higher multiples from a buyer. This is for many reasons, and if things are equal, may be a reason to hold your business for a few years more.
Since I am (sort of) younger and in the mindset of investing in strong businesses, I have a natural bias to retain ownership in great businesses. Please recognize that I have that bias. On the other hand, balancing things out is that we never know what is around the corner in life or in business. Here are some other posts related to selling your business.
- To Sell or Not To Sell Your Business, That is the Question (a series), April 22, 2012
- Company Founder Regrets Sale to Traditional Private Equity, April 25, 2012
- Assessing the Width of Your Business Moat (To Sell or Not to Sell, a series), May 14, 2012
- Best Time Ever to Own a Business, May 23, 2012
- Business Purchase & Sale Agreements (a series), May 29, 2012
- Three Cheers to the Lazerows and Buddy Media, June 7, 2012
- Have Your CEO and Management Team in Place, June 28, 2012