Some women never envision selling their startups at all – they want to stick with them and turn them into something much larger. Selling your startup isn’t easy. But, if you’ve received an offer that has the gears in your brain cranking, there are a few things you’ll want to think about before you accept (or decline) that offer.
Selling Your Startup 101
1. Consider Your Rate of Growth
The offer you received might be fair for where your startup stands right now. Are you going to double in value by the end of the next fiscal year? If the growth is great, don’t give up now. It might not be smart to sell if you can command a lot more just a few months down the road. Your patience can help you pocket substantially more.
2. Think About What You’re Actually Worth
Startups often receive offers that are deceptively low. Sometimes, the offers are fair but seem low because startup owners aren’t sure how to calculate the worth of their businesses. The majority of business values are calculated at a multiple of their revenue, meaning sales multiplied by a number (usually between 1 and 10) that depends on the growth rate of the business. Make sure the offer is in line with a fair multiple.
3. Give The Offer a Fair Comparison
Different niches often value businesses at different revenue multiples. By comparing your offer to the asking price of similar businesses for sale, you’ll know whether or not you’re getting a fair shake. If a company is eager, they may offer you more. If you’re looking for a quick sale, you might want to accept less.
4. Are You The Only Owner?
If you co-founded your startup or if your employees have ownership in your startup, you have a lot of important conversations to have before you make a decision. Selling might be the perfect option for you, but it could negatively impact everyone else who has been fighting by your side from the beginning. Make sure you hear everyone out before you make a definitive decision about selling your startup.
5. Would You Lose Something Proprietary?
If your startup is based around something proprietary, selling your startup might be selling yourself short. When you have something that everyone else wants to access, you’re better off licensing your proprietary product or design and allowing others to borrow from you. You’ll get more than a quick paycheck – you’ll own the whole market.
6. Can You Negotiate?
If the offer you received isn’t the offer you’d hoped for, you don’t have to leave it at that. Any offer at all can be negotiated. You’d do the same thing if you were buying or selling a house, and your startup is no different. If you want the offer changed, it never hurts to ask. Brush up on your negotiating skills and be prepared to come back with a counter.
7. What Would You Do With the Money?
If you accept the offer and the sale is completed, what happens next? Are you going to use that money to start a new business? To attend specialty schooling that will afford you better mastery of your craft? To buy a beachfront condo and relax for a little while? If you don’t really need the money or you don’t have any grand plans at the moment, hold on to your startup until you do.
You’re the only person who truly knows what decision is right for you. Trust your gut.
Michelle Arios is a business and careers blogger, constantly on the look-out for new tips and ideas to help business owners and CEOs grow and expand their businesses. Arios is also a part of the team at BizDb.co.nz, a popular business directory from New Zealand.