A couple of years ago, one of our customers lost more than $96,000. He lost this money because he missed the signs it was time to sell his business. Early in 2007, Jorge started a website that quickly established an audience, found sponsors and advertisers, and grew into a trusted resource for thousands of readers.
Fast forward to 2014. The publication was a big success. Despite this, Jorge wanted to sell, as the business wasn’t fun anymore. Worse, the company’s growth was starting to level off, and Jorge wasn’t sure what to do to kick-start growth again.
That was when he approached my firm, Quiet Light Brokerage. I offered him a valuation, which he thought was too low. So I explained that if he wanted his desired valuation, he needed to grow the business 15 percent. We scheduled a follow-up for 12 months, but nine months later Jorge called and wanted to sell immediately. His aim of growing the business had backfired. He wasn’t interested in the business anymore, and he had his eye on a new opportunity.
The unfortunate catch: his business had declined and his valuation had dropped.
Your business’s value is always changing
Like any company, the value of an online business changes as it grows, stagnates or declines. You need to recognize the signs and conditions that lead to the highest valuation possible. Two things that have a huge impact on your business’ value are its current earnings and its earnings trend. Higher earnings and positive trends result in higher valuations.
So it makes sense that the best time to sell your business is before growth stagnates or before the business sees a downturn. But many entrepreneurs, who are hopelessly optimistic, completely miss this. Optimism is good, but not if it blinds us.
So how can you break this blindness? Here are four common signs I’ve seen that will tell you it’s time to sell.
1. You’re experiencing burnout. This is the most common reason to sell an online business. Burnout is dangerous because we think it can be cured through hard work. The reality, however, is that if you’re truly burnt out, pushing through it won’t be enough (as Jorge found out firsthand).
2. Your industry is changing in ways you don’t like. Industries change. Sometimes these changes turn the niche you loved into a niche you end up hating. One of my first clients chose to sell his web hosting company after major changes in the industry threatened to make his company outdated. In the end, he didn’t enjoy what the industry had become.
Fortunately, he saw this before the business stagnated. As a result, he sold his company for 25 percent more than the market average.
3. The next growth phase is more than you want. In order to scale your business, you’ll need to adjust its structure. But for some entrepreneurs, the idea of changing isn’t appealing.
Three years ago I helped an entrepreneur sell his e-commerce business. It had a history of steady, consistent growth, but the owner had reached his personal limits. He fulfilled all orders from his garage, answered all customer calls, and managed all marketing efforts. The business had plenty of room for growth, but the owner simply didn’t want to take the next step. This would have meant hiring someone to help fill orders or to answer phones. However, managing employees didn’t appeal to him.
4. You have a new project that excites you. Most entrepreneurs suffer from what I call “shiny penny syndrome.” It entices us to pursue new ideas and dabble in new projects. On occasion, these projects grow into real opportunities. The mistake some entrepreneurs make is to think they can manage a new opportunity in addition to their existing business. But what can happen is that both businesses suffer.
I knew one such entrepreneur who initially intended to run both companies simultaneously. It quickly became clear that he couldn’t manage both at the same time. Fortunately, he sold the older business before stagnation caused too much damage to its valuation.
Choosing to sell your business is always a personal decision, and none of these signs should be taken as definitive. But if you run into these signs, take a gut check and make an honest assessment. Are you missing out on the high point of your asset’s value? If so, it might be time to sell.