In most cases the decision to sell a business, especially a profitable one, is difficult for an owner. Oftentimes there isn’t a SINGLE reason, but rather a handful of reasons influencing the process. These varying reasons to sell can make a difference in how quickly they want to sell and how long of a transition period they will provide a new owner.
In this article I’ll discuss the top 10 reasons that business owners decide to sell. If you are looking to SELL, consider taking time to assess which of these reasons resonates most with you, and how it may affect the selling process. If you are looking to BUY a business, take note of these reasons an owner might sell, and factor that into your conversation and vetting process.
Reason #1 – The Company is Not Making Enough Money
One can understand why the seller would want to get out from under a business that is generating either no profit or too little profit. Most will go out of business. But there might be ways it can be salvaged. Questions to ask and answer are:
- Why is there insufficient cash flow?
- Is it because debt service is too high?
- Could it be recapitalized?
- Did the seller have the proper skills to manage the company in the first place?
- Maybe it could be turned around by the right owner
Reason #2 – Retirement
This is the most common reason profitable businesses are sold. In many cases the business is passed along to a family member. However, these days the family members, often the kids, do not have an interest, or the skills, to run the business. There really isn’t a succession plan in place. Some business owners make this decision to retire and want it to happen FAST, while others like the idea of transitioning.
Reason #3 – Relocation
This will often coincide with retirement. The owners may have, as an example, run their services business in Minnesota for 30 years. Now that they are ready to retire, they want to be in a new climate (like Arizona!!). Or maybe they want to be closer to family, like kids/grandkids. When relocation is involved, it may affect the timeframe to sell as well as the transition period for the buyer.
Reason #4 – Burn-Out
Bottom line, the seller is really tired of doing what they are doing. This can be hard for the seller to admit, but most will understand this if the owner had been running the business for years. Burn-out can also come from having frown the business in a way that things got too big or complex, and the original owner simply doesn’t have the skills to handle it. They are mentally grinding every day because they are working above their level.
Reason #5 – Health Problems
Many business owners will continue to run their business well into their retirement years. The risk of doing this as you age is that health problems can start to evolve. We’ve worked with many business owners who engaged us to help them sell due to a sudden health issue. While this can be unfortunate, it’s often a good opportunity for the owner to slow down and recuperate. Depending on those health issues, there may (or may not) be an adequate amount of time to sell the business.
Reason #6 – Another Business Opportunity
When someone owns and runs a successful business, they often will never go back to a typical 9-5, W-2, regular job. However, some business owners run multiple businesses and for whatever reason want to sell one. Reasons include wanting more time with family, need the capital/proceeds to fund a new endeavor, or a particular business has really taken off and now requires more time than they have to give to it.
Reason #7 – The Business is at a High Point
Some businesses continue to grow both revenue and profits for a very long time, but most have different cycles of ups and downs over time. If a business owner is near retirement age and the company is on an upswing, many will decide to sell. Why? Because they can get the most money for their business when it’s most profitable. Business buyers prefer to acquire companies that are growing and have a bright future.
Reason #8 – Partner Problems
It’s an age-old issue (unfortunately) that business partnerships can and do sour over time. Reasons for this can vary, but if things get bad enough it usually necessitates one partner exiting the business. One option is for one one of the partners to buy the other one out. If neither person wants to do this, it may necessitate a sale.
Reason #9 – Death of the Business Owner
Sometimes a sudden death occurs, leaving an estate or surviving spouse to handle the sale of the business. This is obviously not an ideal scenario, as things get more complicated when the owner is no longer there; namely they cannot provide training or orderly turnover to the new buyer. In addition, family members may have to step in to run the business temporarily, and they may not have the skills or experience to do that.
Reason #10 – Looking for a Change
Sometimes a business owner’s perspective on life, or life desires/goals, changes. These personal changes may motivate them to pursue a new direction in their career, which may not include the current business they are running. If they are too young to retire, then the sale of the business may allow them to take time off and figure out their next move. In other cases someone might inherit a business that they do not have any desire to run. All of these situations will drive the need for a business broker.
If you are a business owner considering selling your business, please reach out to Justin Turner for a free consultation. He’ll take time to learn more about your business and reasons for selling, & share his background and an overview of the sales process.