There is a heartbreaking paradox about starting and building a business: when you feel like you want to keep it forever, you should probably sell it, and when you feel like selling it, you should probably keep it.
As I pointed out in an earlier column, it is human nature for entrepreneurs to hold on to their businesses too long for fear of missing out on some future upside. In his book, Early Exits: Exit Strategies for Entrepreneurs and Angel Investors (But Maybe Not Venture Capitalists), Basil Peters argues entrepreneurs would be far better off selling their businesses sooner, when there is plenty of upside left.
Given the emotions around selling a business, and the fact people tend to hold on to investments past their prime, I’ve developed this unscientific — yet objective — quiz to evaluate whether now is the time to contemplate selling.
In each of the following six categories, choose the statement that best describes you and your business:
1. Product/service pipeline
A. We’re excited about launching a new product/service line next year, and we have a couple of other ideas in the hopper too.
B. We have no formal plans to launch anything new, but we have a few ideas.
C. We’ve been selling our current lineup of products and services for a while and we have no plans to launch anything new.
A. I have a senior management team that has been intact for the past two years.
B. We’ve added to our senior team in the past 12 months.
C. We’ve had a couple of key people leave lately.
A. We grew our top-line revenue by more than 10 per cent last year.
B. We grew our top-line revenue by 2 per cent to 10 per cent last year.
C. We’re flat or down from last year.
A. We grew our profit by 10 per cent or more last year.
B. We grew our profit 2 per cent to 10 per cent last year.
C. Our profit was essentially flat or down last year.
5. Sales pipeline
A. We have a great pipeline of business we can see coming in for the next year, including some long-term contracts and recurring revenue we can count on.
B. We feel pretty good about sales in the future.
C. We really don’t know what sales to expect in the future.
6. Infrastructure and equipment
A. We have just made some substantial upgrades to our infrastructure, such as machinery, software, or plant equipment.
B. We’ve got some new equipment and some things we’ll need to upgrade soon.
C. We need to make some major investments in infrastructure and equipment to stay current.
Now calculate your score. Give yourself 10 points for every A, five points for every B, and 0 for every C.
If you scored 50 to 60 points, you probably feel great and have no immediate plans to sell your business. You probably feel energized by going to work and you are looking forward to the next few years. However counterintuitive it feels, now might be the right time to sell.
If you scored less than 30 points, you probably feel tired, and the idea of selling your business may sound attractive, but right now is the worst time to sell.
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a valuable – sellable – company. Follow him on Twitter @JohnWarrillow.