How to Know When to Sell Your Startup [Checklist]

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Most startup entrepreneurs harbor the hope that they can someday sell their business and make a considerable profit. However, timing is a crucial factor in ensuring that you don’t shortchange yourself. Here are some things to consider when determining whether to sell your startup business:

1. You don’t have enough resources for expansion.
Months or years after starting a business, you may come to a point when you suddenly have exhausted all funds and don’t have enough resources to continue the operations and scale the business. Should you find yourself in this sticky situation, one of the best courses of action is to sell your startup. In the mean time, while you are still looking for investors and buyers, you might want to learn about the five ways startups can save money to reduce operational costs considerably.

2. You get an offer.
Getting a sudden irresistible offer can be tempting, especially when the offer can provide you with financial security and enable you to fulfill/go after your business goals.

3. You just want to be involved in the initial stages of starting a business.
Not all founders are built to stick it through the end. If you are one of them, and you know that your skills lie primarily in setting up a business rather than being involved in long-term operations, then you should start looking for buyers.

4. Your business has grown to its full potential.
If you want to get the best value for selling your startup business, then allow enough time for your company to grow before deciding to sell. Give your market three to five years to grow before selling your business. Meanwhile, start meeting with potential sellers at least a year prior to when you intend to sell your company. Keep potential buyers updated with monthly news about the company, so that by the time you are prepared to sell, you will receive many offers. Scheduling regular meetings is good PR for your company and it will attract more potential sellers for your firm.

5. You know the value of your company.
Before pitching your business to possible buyers, you should first determine the value of your startup company. To do this, multiply your forward earnings by six times. If the potential buyers won’t agree, cut it into two.

6. You have tried the 20:6:3:1 rule.
According to an article James Altucher wrote in Tech Crunch, his friend who had brokered sales of small companies for 30 years had told him to use the 20:6:3:1 rule. How it works is that you call 20 companies that may be interested in buying your small business. After which, you get 6 follow-up meetings, which will then be broken down further into three meetings that will most likely lead to three offers. This can then allow you to choose the highest offer.

7. You have sought potential buyer’s opinion/advice.
It might also be a good idea to partner with the buying company and work together to expand and increase revenues. Aside from this, you should also try asking the potential buyer for any advice and opinion on how the two outfits can be integrated.

When you have checked most of the items on the list, then you are just about ready to sell your starutp. Be prepared to research about interested clients’ business, and don’t underestimate the power of networking before you proceed to selling your company.

Jep Barroga is a freelance writer & blogger for MoneyHero, a Hong Kong based comparison website which provides unbiased information about credit and personal finance.