Since 2007, I’ve sold 6 businesses ranging from $120,000 to $4,200,000. If you’re questioning whether it’s time to sell your business, I’ve been there many times so I get it. The right decision can be the difference between hundreds of thousands of dollars or, even worse, your happiness.
For the sake of this article, I’m mostly referring to web businesses in the United States. However, the process behind your decision is mostly the same whether you have a brick and mortar business or live in a different country.
Disclaimer: I’m not an accountant or a lawyer, so always consult professionals when applicable.
So let’s go through the important questions to ask yourself. You should have a pretty solid feeling by the end of this article.
Table of Contents
- How Much Is Your Business Worth?
- How Are You Feeling About Your Business?
- Is Your Business Growing?
- What Will You Do After Selling?
- Reasons To Sell Your Business
- Reasons To Keep Your Business
How Much Is Your Business Worth?
There are actually two answers to this question.
- The actual market value of your business.
- What it’s worth to you.
Generally speaking, your business is worth 3-5 years of profits. For example, if you profited $100,000 in the past 12 months, you can likely sell for $300,000-$500,000. Of course, it depends on several factors:
- Your niche/industry.
- How long you’ve been in business.
- Whether the business is clearly failing, stagnant, or growing.
- Macroeconomic market conditions.
- Price point.
- Difficulty to replicate what you’ve built.
But when first considering whether to sell, use the 3-5 years estimate to determine the market value.
Now, what is the business worth to you? I don’t mean whether it’s “your baby” (more on that later) – I mean, how much do you want out of it? For example, when I decided to sell GodVine – the largest inspirational site on the Web at the time – I didn’t really focus on market value as much as I focused on what would be the most impactful to me and my personal goals.
The number I decided on was $4,000,000 because it felt fair to the potential buyers and would directly exceed my goal to retire at age 30 with $5,000,000, even after taxes. There was a short bidding war and Salem Communications made an all cash $4.2 million offer. I accepted it and the deal was completed 30 days later.
I largely attribute this successul sale to both parties being fair and honest. Neither party was trying to one-up the other; we wanted a good deal for both sides, and we got it.
My Dad always told me, “A good deal is when both sides come away feeling just a little bit ripped off.”
So ask yourself, how much money in a lump sum would be meaningful to your personal goals? If you’re operating a site that profits $30,000 per year, would $120,000 all at once change your life? Could that be more meaningful to you than earning $30,000 over an entire year’s time for 4 years?
I can’t answer it for you, but let’s look at other questions that can help you arrive at a conclusion.
How Are You Feeling About Your Business?
Are you burnt out? Are you over it? Are you still loving your business?
I have the attention span of a child when it comes to running a business, so I get bored pretty quickly. It seems that around 2 years is when I start itching to sell and move onto something else. One of my best friends has run his website for 13 years and I’d legitimately say he loves it more today than ever before.
How are you feeling? If you’re burnt out, and have been for a while, it’s likely not going to change. Yes, there are ways to make things easier by hiring help, but, if you’re like me, that in itself is just another stressor.
How you feel about your business will directly impact the multiple you sell for. If you are loving it and it’s stable, yet a large lump sum of money would change your life, maybe you ask for 6 years of profits. If you just want to be done and move on with your life, give someone a great, easy deal and let it go for 3-4 years of profits.
Getting out of a business you hate is like ending an unhappy relationship. You won’t even really know just how bad it was for your life until you’ve sold. Don’t waste your life running a business you don’t like.
Is Your Business Growing?
As someone who has browsed thousands of web companies for sale, it’s disturbing how many are clearly failing.
Waiting to sell your business when it’s in a clear free fall isn’t going to work. Buyers can see it clearly, and, if they do make an offer, it will be extremely low (and rightfully so).
Decide whether you want to sell when things are going well. I know that’s difficult because, by nature, business owners don’t want to sell a profitable, growing business. But that’s precisely when it’s the easiest to sell.
Look to the future and ask yourself some questions:
- Will I still like working in this niche in 5 years?
- If market conditions change, will I be able to adapt?
- Do I have a fairly clear roadmap to further growth?
I started trying to sell Viral Nova when it was making $450,000 per month in profits. Literally everyone said I was crazy, but they were only looking at that short-term number. I was looking at Facebook’s history of algorithm changes, the constant technical issues I was facing, the ridicule from traditional journalists, lawyers beginning to circle me like vultures, and just sheer unhappiness.
Turns out when you have a business spitting those kinds of profits, a lot of people are interested. I had conversations with so many buyers, including Disney, which was pretty cool. It didn’t take long to complete the sale of 80% of the company to a private buyer because I offered an extremely fair deal based on my (un)happiness level and the risk associated with it.
That side story aside, the point here is to sell when things are crushing it. If they’re not, then put together a short term plan to tighten it up along with a multi-page writeup for interested buyers that tells them how they can right the ship.
And please, never be dishonest. Selling a dud will end in a lawsuit, and you’re going to come away even worse off.
What Will You Do After Selling?
For me, I always had the next website locked and loaded before selling an existing one. There was always something I was passionate to start right after getting a nice payday. Not everyone is the same, and that’s okay, but ask yourself two questions:
- What will you do financially after selling?
- How confident are you in finding new success?
Now if you sell your business for an amount that allows you to retire, this is less important. Or perhaps the income was not vital to your household, and a lump sum serves you and your family better.
But if you throw 4-5 years of profits into a bank account with the attitude, “I’ll figure something out later,” you’ll be surprised how quickly you run out of money.
So, spend some time pondering what will be next. I recommend doing so with a pessimistic attitude so that you gut check yourself and feel confident enough to move forward.
Reasons To Sell Your Business
Recapping some of the above and elaborating on more reasons, here are some of the reasons you may choose to sell your business.
- A sense of security by taking several years of profits in advance. Being risk-adverse.
- The amount will change your life.
- You are burnt out on your business, which is inevitably going to hurt it over time.
- It’s just fun to take cash off the table and jump into something new.
- It has become more than you are comfortable managing. I’ve sold companies to bigger operations that can give them the care they need.
- It has become stagnant and further growth seems impossible under your ownership.
- Capital gains tax rates are generally much more favorable than income tax.
Again, a good reason is never because it’s inevitably going to fail, has illegal components buyers aren’t aware of, or otherwise based in dishonesty.
And don’t ever let anyone else convince you that you should sell or not sell. It’s your personal decision and your life.
Reasons To Keep Your Business
Of course, there are plenty of reasons to keep your business.
- Growing a business is fun.
- The income stream from owning the business is likely larger than you’ll ever get from interest income if you put the sale money into conservative investments (stocks, bonds, etc).
- Nobody will pay you enough to make it worth it. Sometimes the market value and your value just aren’t aligned.
- You’ve owned your business for less than a year, subjecting a sale to short-term capital gains.
- You still love it. There’s more to life than money. If you love what you do, keep doing it.
- It’s harder to grow something from scratch than to improve an existing business.
Only you know where you stand, and there are certainly more reasons than what I’ve listed above. Hopefully these points are sparking some thoughts and decisions.
If you’re considering selling your business, and it’s not clearly failing, you’re in a great position. As you can see above, there’s no right or wrong – it comes down to how selling your business will impact you personally.
Make the decision with your happiness in mind first followed by your finances. Both are important, but I know too many rich people who are miserable to ever say money should come first.
If you ever want personal advice specific to your situation, I love taking a look at websites and companies for sale. Feel free to contact me.