5 matters to consider when contemplating selling a startup: Part 2

Last month, we published a blog post that discussed some of the most common external factors that motivate entrepreneurs to consider the option of selling a startup. But market factors are ultimately only one facet of a much larger picture. For most entrepreneurs, the decision to sell is a very personal one, based on lifestyle factors specific to each unique case.

Today, in Part 2 of our series, we’re going to examine some of the most common internal reasons why entrepreneurs begin considering a sale.

1) You’re feeling restless

Do you find yourself asking “what’s next”? One of the most common traits of entrepreneurship is a sense of restlessness[1], and a desire to move from one goal onto the next. Over time, our personalities and interests evolve. Maintaining the same level of commitment and passion over the long-term is difficult. It’s natural to want to explore new opportunities, and to feel the need to seek out new challenges. Trust your gut- if you feel that it’s time for a change, it just might be.

2) Your business has value today
You’ve poured all your blood, sweat, and tears into the business and it’s finally financially where you want it to be. Sure, you may want to breathe a sigh of relief, but you may also want to consider striking while the iron is hot.  An opportunity to gain liquidity is always worth considering, and best to consult with your trusted Zeifmans advisor before making any potential risky moves.

3) You have a buyer in mind
If you’ve put the time in to grow your business and establish sturdy systems run by great teams, you may find yourself in a position where a buyer presents themselves under favourable circumstances. If an interested party aligns with your own personal timing, or is willing to conduct a purchase in a way that is more beneficial to you from a tax perspective (for instance, purchasing shares instead of assets), it is worth considering the option of selling.

4) You’ve achieved long-term financial security
For many entrepreneurs, the goal of starting a business is to create a stable financial future for themselves and their families. However, many entrepreneurs receive so much joy and meaning from the work itself that they lose sight of this original goal, and continue to work several years beyond achieving that financial stability. Work can make life sweet, but so too can retirement. If you have built up a state of wealth that could carry you into the future, you may consider selling your company in order to step into a more laid-back lifestyle and consider your next steps in succession planning.

Taxation is an integral facet to any sale scenario. If you believe that tax rates are going to increase (and therefore result in a lower amount of after-tax return), or if the current tax environment allows you enhanced planning that may not be available in the future, you may feel that it’s the right time to consider selling. Further, if you have stopped qualifying for certain tax credits due to the growth of the business, it’s important to take this into account when thinking about future growth.

Seeking guidance on a sale
Ultimately, your decision to sell will depend on your other options as well. What will you do if you don’t sell your company? Will you keep the business? Will you find someone to replace you? Will you shut the business down? What will the after-tax result of a sale be? Keep in mind that if the deal is not properly structured, a higher sale price may not result in more money in your pocket after taxes.

Measuring the attractiveness of a sale depends on a number of factors that combine like puzzle pieces to create a full picture. That’s why it’s helpful to speak with a knowledgeable advisor, who can assist you in gaining perspective on your options, and weighing the cost/benefit of a sale. The team at Zeifmans has decades of experience assisting entrepreneurs as they navigate their biggest business decisions throughout the course of the business life cycle; from inception through to sale. If you’re wondering whether now might be the time to sell your tech startup, contact one of our professionals today to get the conversation started.

[1] Entrepreneur, “7 Unexpected Signs You Might Be an Entrepreneur”, https://www.entrepreneur.com/article/242012


Q&A with Partner, Jennifer Chasson

Q&A with Partner, Jennifer Chasson

With over 25 years of experience and 100+ successful transactions under her belt, Partner, Jennifer Chasson, brings invaluable expertise to the table. Whether it’s guiding as an advisor, mentor underwriter, ...