Potential buyers of a business want to know upfront why it’s for sale. They’re naturally suspicious–if this is such a good business, then why is the business for sale? What is wrong?
In all likelihood, the business is continuing to provide a good living for the owners just as it always has; what’s changed is the owner, not the business. If that’s not the case, we’ll know it and so will you. Full disclosure is essential if we’re going to undertake the sale.
Just as we as homeowners sometimes move from one perfectly good house to another, there is nothing at all wrong with the first house; we just decide to move to another one. Sometimes we change jobs, change locations, change wives, change husbands, things just change as we go through life.
Sometimes the change results in a need to sell a perfectly functioning business that has been providing for the owners, just as it is supposed to, but the owner wants or needs to sell the business.
Let’s take a closer look at these owner reasons for selling.
When I was starting out in business brokerage some 10 years ago, burnout was the top reason individuals decided to sell their business. And it’s still the top reason.
At any given time, 20 out of 100 business owners say they would sell if they could get what their business is worth. Many of these owners no longer have the passion or energy to devote to the business. Others have something entirely different in mind.
Retirement is the second leading reason for selling a business today. It didn’t used to be. Ten years ago retirement was well down the list of reasons and family circumstances were number two.
It’s not surprising that retirement has moved way up. The Canadian population is aging and with it, the number of self-employed nearing retirement. Most of the businesses we list for sale are for people between the ages of 60 and 75. Those who’ve built their identity around their business find it hardest to step away. And for them, handing the keys to the right person is especially important.
Aging can also bring health issues that prompt an owner to leave their business earlier than planned. Medical conditions—yours or those of someone close to you—can surface at any age, of course, and change your priorities.
Other family issues can be a factor in selling as well—relocation or the need to satisfy a divorce settlement, for instance.
Some owners keep their business small by choice, finding it more rewarding than a bigger company with more employees. If the business takes on a life that no longer meshes with theirs, these owners may decide to sell, rather than augmenting the skills or the financing the business now needs.
Remember how 20 out of 100 business owners would sell if they could get the right price? If that describes you, don’t count on a buyer knocking on your door.
When companies pursue businesses for competitive advantage e.g. to acquire skills or technologies more quickly or at lower cost than they could be built in-house, their targets tend to be bigger than the small businesses most of us own. So strategic acquisition is a less common reason individuals sell their business.
Thinking of selling?
If you own a business: start by knowing what your business is worth. A Professional Business Valuation will accurately reflect market conditions and help you decide whether this is the right time or not.
A valuation has additional value. In many cases the Business Valuation identifies what you have to do over the next couple of years to make the business worth what you want to get for it. It is also useful for your structuring and tax planning decisions, some of which can take two years to implement.