Reasons People Sell Their Business - O'Keeffe and O'Malley

Reasons People Sell Their Business

Nov 10, 2016

Everything is for sale at the right price, right? Your house, car and your business? But aside from the dollars being dangled in the eyes of a business owner, usually there are other reasons. If you are a business owner, at some point you will likely be considering the challenge or opportunity of selling your business. Following are some reasons most people elect to sell:

1. Boredom-Burnout-Not Motivated

If you’ve been running a business for a long while, regardless of how successful it is, you may just be bored with it or tired. Starting and running a business is demanding, extremely time-consuming and stressful. While you've loved the challenge and have enjoyed your success, the desire and drive may be gone. Often if an owner has developed a strong management team, they can reduce their involvement in the business. But if the designated leader remains dependent on the owner, the burnout is hurting the business.

2. Retirement Age

At some point in time it’s just time to exit. You’re ready to travel, play golf, garden, slow down or spend more time with family. You’ve built the business, made some money, and are ready to cash out. Many baby boomers who own businesses are thinking about retirement. And there are many investors who expect a large increase in the supply of businesses for sale, a situation that will be good for buyers but may put pressure on sales prices.

3. Desire for Personal Liquidity or to Diversify One’s Net Worth

Often one’s entire net worth is tied up in their business or with bank debt. In today's litigious society, there can be a large amount of anxiety caused by personal liability and unknown potential risks. This anxiety may lead some people to sell.

4. Lack of Capital to Expand

Some businesses have already cycled through many industry challenges, and need substantial capital to grow and expand into new product lines, to purchase better equipment, or to go into other territories. This lack of needed capital can make selling the business an attractive alternative.

5. Divorce (partner or spouse)

Business partners split up just like married couples. It’s an unfortunate situation, but if a partner or spouse can’t agree on a price or can't fund a reasonable buyout of the other’s interest in the business, some owners decide to sell outright and split the proceeds. A preventative option to this situation is to have a buy-sell provision in place with partners and spouses that will alleviate a potential sale because of a divorce.

6. Health or Medical Reasons

It's not uncommon for a business owner to have a serious medical issue, either personally or with a loved one, which prevents them from continuing to own and operate a business. In some cases these sellers are selling under duress, which can work in the favor of buyers.

7. Business is Struggling With Declining Revenues and Earnings

When a business is in decline, it is normally not the best time to sell. But, if it’s just not working out, one may not have many other choice than to exit or risk losing the entire business.

8. Knowing That The Business Has Gone as Far as One Can Take It

Sometimes, a selling business owner knows that the business performance for the last few years is not sustainable. Maybe the market is changing in a way that will make the firm's offerings obsolete or less desirable. Unfortunately, this is a bad situation for a business buyer who may not have the seller's insider knowledge on why prospects for the future are not so rosy.

9. Unforeseen Opportunities or Strong Buyer Interest

This is one of those things that just happens. Someone sees what you’ve built, loves it, and makes you an offer you can't refuse. Or, you recognize the offer is awesome, all in cash, and irresistible.

10. Ready for New Challenges

Like getting burned out, some owners still like what they do, but they aren't challenged or motivated with the day-to-day activities any longer and want to feel more fulfilled in what they do. These owners may simply be looking for a change of scenery.

11. The M&A Market is Hot

Everyone does better when the market is up. If you are considering selling in the next few years, you should be looking to see how the M&A market is performing, as valuations in certain times can be 20% higher than other time periods with the same earnings stream. In these market times, buyers will bid up prices for the right company over other buyers.

12. It's Time

Private equity groups normally have it in their plan to sell within a time period of 5 to 7 years of the fund starting. Larger corporate owners (public or private) may sell a division of a business in order to focus on another area or raise funds. The division may not be in their strategic plan, or they simply wish to cash in for the company’s stakeholders.

In all of these situations, we suggest one overriding strategy: don’t go it alone. Get some professional assistance; it will pay for itself many times over. A professional can help you value your business and evaluate strategies, timing and offers, and find and evaluate potential buyers, while you continue to focus on running your business.