Reasons for Selling a Business
Buyers also need to
understand the professional recommendation can increase the possibility of
a successful outcome. In addition, to understand the business buyer persona, it
is also important to understand the reasons for selling a business. Hence,
selling a business can be an emotional experience for the seller. Businesses
are sold for several reasons; therefore, business valuation is an essential
element for setting the price. Business valuation is crucial and the buyer and
seller must get the business values, optionally using an independent business
valuation professional. Additionally, both parties must use multiple valuation
techniques to determine the essential value of a business. Now that we have
emphasized the importance of business valuation, the following are the most
common reasons for selling a business.
Retirement Many business owners are in the demographic that will soon be retiring. As per US and Canadian statistics agencies, more than 20% of the population will be over 65 by 2026. For Baby Boomers (people born between 1960 and 1980) business owners, selling their company is the most popular exit strategy to withdraw. As a business owner, there may be an excess of businesses coming to the exchange, which is good news for business buyers but may diminish valuation for business sellers.
Owner Fatigue Business owner exhaustion and burnout is the most common reason to sell a business. Additionally, business owners who have owned and operated their business for several years are also exhausted in operating their business. Restaurants, Coffee shops are some of the examples of businesses that can be profitable with potential growth but the owner may sell because of boredom.
Personal and Family Problems Major changes in a business proprietor’s personal or family life can be a reason to sell a business. For example, the business proprietors' spouse or kids may be relocating. Divorce may be another reason to seek an exit from a business.
Divestment The majority of a business owner's wealth is tied up in one company. A business owner may sell a part of his business or to diversify. A balanced portfolio is a critical risk mitigation strategy.
New Challenges The business owner may have observed other businesses to pursue which have higher growth allowances and profitability.
Buyer Interest The old adage “Everything is for sale at the right price” applies to businesses as well. A strategic buyer is willing to pay a premium for a business to gain from synergies, excluding competition, obtaining market share, or several other reasons. For the business proprietor, it is an opportunity to gain profit on their hard work for a premium.
Competitive Threats The business may be striving because of competitive warnings. In many cases, a business has been around for several years and has not innovated. In many cases, business owners may exit the business, which creates a good opportunity for business buyers if they can turn the business around.
Market Timing Business valuation is the most important criterion to determine the transaction price. Assuming costs are constant, valuation is directly proportional to revenue, earnings, and cash flow – depending on the valuation technique used. When the economy is strong, businesses have the highest valuation and it is a good time to exit. The best time to sell a business is when a business has been up for three years and the best time to buy a business is in the third year of an economic downturn.
Lack of vision Perhaps the worst reasons to sell a business can be a lack of vision. In many cases, business owners go instant gratification and losing out on long-term growth from the business. Business, proprietor, retirement, disinvestment,
why would someone sell a profitable business?
how can I sell my business?
how do we know that the buyer/seller is genuine?