21 Feb Reasons to Sell Your Business
Being a founder is a tough and lonely road, whether there are multiples founders or not. Sometimes it is reassuring to know you are not alone. This post covers the common reasons why people decide to sell their businesses. If you have decided now is the time to sell, the follow-up blog How much is my business worth? will follow on nicely. In reading this, it will also be helpful to keep in mind that for every one good reason to sell your business, you will have about a dozen reasons NOT to sell your business.
Selling takes an emotional toll
The journey for a business owner who has decided to sell their business can be a very challenging; both physically and emotionally. It is human nature to put our ‘blood-sweat-&-tears’ into our most valuable assets, and for an entrepreneur, this is your business. When you decide that now is the right time to sell, regardless of the reason, it is generally a painstaking process. Avoid navigating these waters alone, as discussed in last week post Why you should hire a sell-side consultant. The following list is some of the most common reasons businesses are sold. Another way to look at this, the following list might make you consider selling.
- Exhausted, drained and “over it”
This is surprisingly the most common reason a business is sold, behind retirement. General fatigue, boredom, and burnout can have very negative impacts on productivity and therefore your company value. When your business idea is young and fresh excitement brings you into the office. When that dies, you should consider getting out. Beyond the actual stress, many owners simply sell because they are no longer challenged or interested in the business’ operations. Businesses can go stagnant, often outside the owner’s control (industry shifts), and this generally results in boredom and dissatisfaction with one’s work life.
- I’m too old for this
Running a company requires a significant investment by a business owner, and this is generally more by way of their time than actual capital. Running the business becomes a daily routine and it can be very hard to break old habits. Entrepreneurs are generally passionate, driven individuals who love what they are trying to achieve. If they do not reach the “I’m over it” stage, mentioned above, an entrepreneur will generally stick with it until they can no longer physically keep up. This happens when it is finally time for them to retire. In the post, Always be prepared and ready to sell your business we discussed that planning this year’s in advance, and always being ready, will translate into more money for retirement….maybe an extra few trips to Hawaii!
- Physical Illness or Family Problems
Life doesn’t always follow the path you intend. Should the owner or a close family member be distressed with a major sickness, they will look to sell. Linking to the point above, having your business ready to sell will help alleviate some extra stress. Divorce is also a common reason for selling a business, sometimes not by choice. Should a married couple both have ownership in a company, selling the company may be a necessity as part of the settlement.
There are more curveballs in a year of business than during an MPL season. Unexpected events are not just common, they are the norm. One-offs are manageable, but seemingly small events can continue to build, and together they can become overwhelming. Business owners can become relaxed with their operation and their lifestyle. This attitude can, and often does, aid the formation of a habitual routine that results in an overlooking of the big picture which puts a business in harm’s way and can force a sale. A few common examples of this are
- Customer Risk – when the bulk of a company’s incomes are dependent on a couple of clients.
- Declining industry trend – common in most industries at some point in time. A company needs to act on this, or the business becomes vulnerable.
- Personal leverage – when an owner has over-leveraged their personal assets to run the business. Opens up bankruptcy is the tide changes.
Failing to act/prevent these short-term issues can lead to a premature sale, and typically will lead to a sale price lower than anticipated.
- Strong, Increasing Competition
The economy is strong and valuations and investments are growing. A strong economy not only means increased earnings for a business owner but an increased wave of entrepreneurs. Business operations that have been running for 20+ years must innovate and respond to the rapidly evolving market; or be passed by. The alternative is selling when the company is competitive and before these positive trends have passed. This decision can lead to an increased sale price. What normally get is in the way here is pride and stubbornness.
- Sticking to the Plan
When entrepreneurs start a company or acquire an existing company, one of the long-term goals is generally to sell in 5, 10, or 20 years. Business plans will always change, especially in the start-up scene. With that said if a targeted exit date has been set, trends show that business owners are determined individuals and abide by their own terms. As a result, many companies are sold because of a personal timeline set by that owner.
- Opportunity to Capitalize
If you are in a good industry and have a well-oiled machine you may get approached for sale. When opportunity knocks most business owners will welcome it with open arms. Most business owners, except the odd entrepreneur trying to change the world, will hope to hit the financial jackpot. This could be an unexpected offer to purchase from a very motivated investment group, or because a business owner has grown a successful business in an ultra-hot market. These drifts come and go, from industry to industry and at times they may be many years apart. The smart business owner who recognizes these opportunities will strike while the iron is hot. Sellers beware, don’t rush into a sale and let a keen investment offer blind you. Whilst sold competitors can serve as a guideline for a multiples calculation, they often need to be adjusted (which I explain in my next blog). The opinion of professional sell-side experts is very important. We often see hundreds of thousands, if not millions of dollars, left on the table by an uninformed seller.
Remember, you are not alone
For whatever reason you decide to sell, remember you are not alone. Talk to other business owners, in particular, those that have sold, and ask their advice. Each business has a unique personality, and this personality generally reflects the owner and how they think of business. Reasons to sell a business come in a variety of forms. This blog only covered off several common reasons, there are more. But regardless of why you are looking to selling, as a responsible business owner, we recommend you should protect yourself and company by investing in a sell-side consultant who can clearly identify the fair market value of your business when you do decide to sell.