How do you know when to sell your business?

Anyone that wants to buy a business would want a complete business. One that does not have to rely on the founder/owner for it to continue. So the 1st thing you need to do is to extricate yourself from the business. The business needs to run without you or with you as a replaceable part that can easily be replaced. Once you have that then you can begin to decide what to do.

Valuing a business is all related to the net profits after all expenses and salaries are paid, including yours. Multiply that by 10 and that will give you an idea of what the business is worth to an investor. But that's only a starting point to help you get started. You'll need to factor growth rate and future prospects. High growth companies have a higher factor and low growth business have a lower factor.

Also keep in mind that as the owner you'll put a premium on the business that only you will value. It's a cognitive bias. We value our stuff at a higher value than what others will. So to get a realistic value you'll need to seek a consultant to help you evaluate it.

That's your starting point. Good luck

With startups, you're basically growing assets, and not profits. Some other company will make a lot more profit based of what you've built, or you'll have built something and acquired users cheaper than them.

The ideal time to sell is when the growth slows down.

If you have a great profit margin... why? Are you not reinvesting it into anything? Are you not using paid advertising? Have you already dominated the market? $4 mil ARR sounds like you could at least hire a team of 5 and put it into some form of R&D.

It sounds like a good business, but if you could get cash, say $20m, would there be a better way to invest that cash? It could well be that the best thing you could do with your cash flow is reinvest it into itself. In that case don't sell.

Related article: http://paulgraham.com/corpdev.html

Until you're going to sell, don't check the market price. It's a good way to convince yourself that you should sell, and probably at a lower price than you intended.

The most important thing to remember is that any prospective purchaser is looking for a very good deal -- for themselves. So if you do decide to go ahead, get experienced and competent lawyer and accountant to handle the details. You will need to be comfortable with paying some considerable fees for their services, if not, then you really do run the risk of agreeing to a bad deal.

The personal question to ask yourself is whether there is anything else that you would rather be doing? and if so, how much money in the bank/investments would that require? Then only consider offers to buy if after closing costs, consulting services and TAXES you will end up with more than the above amount.

IMHO only walk-in / walk-out deals are safe. Earn-outs, guarantees, hold-backs, etc are effectively money taken off the table. You have to remember that post-acquisition everything changes and you are unlikely to be happy with those changes. The cost of subsequent legal action and the stress are simply not worth it.

I sold a SaaS that was making around that amount in ARR. I used an M&A firm that was specialized in selling bootstrapped SaaS businesses. We ended up getting more than 10 offers which drove up the final price and allowed me to choose the best fit. I would have never been able to go through the process alone and get the multiples that we got offered.

Check out this E-Commerce Masterplan podcast with Nate Lind from April, pretty insightful about what to expect and where you might try engaging some expert help: https://ecommercemasterplan.com/sell-your-ecommerce-business...

The key to any successful sale is to have competition, i. e. other possible buyers - in the absence of that, you need anotehr strong strong BATNA - in your case that may well be to just keep running the business! Given your ARR it may make sense to get an M&A adviser involved who will be able to solicit more offers. Their fees are high but the cake will be proportionally bigger, and you will likely avoid making costly mistakes!

You could also check out microacquire.com - though it seems that your business may be too big for them.

I would consult a tax expert to structure the payout to minimize taxes, then sell it for any reasonable offer. I would not stay on past a transition period.

Basically, I'd take the money and run.