WHY AND WHEN DO OWNERS SELL THEIR BUSINESS

   

• BEST REASON - Owners have maximized the business and economic and market factors make it a great time to sell.   Business is great and businesses are selling for high multiples.

  • A business coming off of a great run of 3-5 years of sales and profitability growth into a receptive selling market during good economic times where capital is available may sell for a significantly higher multiple.

  • Worst time-Overall poor Macroeconomic times, which dampen sales and profitability, capital availability tightens up, and multiples shrink.   Envision trying to sell a business during the pandemic-not the time.  

​

• Sector & Market Boom.  The industry your business is in may be experiencing tremendous growth and there is an active consolidation/roll up activity presence. 

  • If market players are paying premiums to consolidate that are too good to ignore. 

 

• Reaching Retirement: This is a prevalent reason, as owners age and want to start enjoying the fruits of their labor.    Planning for Retirement should be flexible with regard to the sale of your company.   If you know you are going to retire within 5-7 years the key isn’t the 5th year or the 7th year; it's when during that time period that you can maximize your return from the sale of your company.  Selling in a great market  3 years from now can yield more than selling in a poor market 5 years from now.   

 

• Generational Transfer - The Family or Friendly Sale.   These transfers can resemble a normal sale or can look much more like a gradual estate plan to transition your business to the next generation.  The key factors will be the financial stability of the current older generation and the ability of the younger generation to manage the business and provide a return. 

 

• Partner Buy-out

  • Can be a friendly or forced issue facing the owners, when internal or external factors force a change in the future of the partnership.    This occurs when one partner is older, sudden family commitments (illnesses) or reaching retirement age.   This can be more of a forced issue when there is waste, lack of commitment or outright theft or indiscretion.  These oftentimes are easier to find third party financing if a competent partner will be remaining.   Often the use of Buy/Sell agreements may come into play in these situations.    

 

• Employee Buy-Out

  • Can be similar to a Generational Transfer where an owner is facilitating an employee or group of employees purchasing the business.  Often this will be done with Owner financing.  The owner knows the employees, knows what they are capable of and is willing to ride along and finance the transaction over time.   

 

• Unexpected Situations requiring the Owner to Sell​

  • More difficult because you may be in a tight time constraint (unexpected death of a principal or severe illness).  The key if possible in these times is to stabilize the business as quickly as possible, even at the expense of short term profitability.   An owner or partner wants to avoid the fire sale even if there is a fire.   Divorce can be a similar, unexpected force causing the business to be on the market when it otherwise would not be.    

 

• Business Splitting

  • Company dividing into two or more independent companies, which are operated  autonomously of each other

  • Wholly concentrate split company(s) efforts on particular segment of previous entity’s business that makes each divided entity more competitive, efficient, profitable

 

• Competitive Market Forces

  • More competition in the market sector and profitability is decreasing.  This can occur through overregulation or labor costs also.  During these times, once it is determined that the forces acting against the business are not likely to subside, the sooner the business is brought to market the better.  If this is a temporary situation, better to work your way through it and sell business at a more opportune time.  

 

• Interest and/or Desire Waning-Some owners just want to keep moving on

  • If the challenge or passion for a business has passed, recognize this as a real factor.  Owners get business fatigue, customer fatigue and employee fatigue and need a new challenge or can need a break.  If this is your situation, the best path is to get the business centered again and producing with an eye to moving the business to market while it is running as it should.

  • If the business has dropped off because of lack of attention this needs to be rekindled and shined up to go to market.   This is different from market forces that are out of your control.   

 

There are a host of reasons businesses get sold.  Many of these factors are out of the control of the business owner-which is why you always need to consider selling when everything is running right and you can command top dollar.  Everything changes over time.   If things are great-consider selling.  If things are tough but improving, wait if you can wait.  If your business challenges are fixable-fix them and then consider selling.   If your challenges are not fixable-get the business to market.    Being honest with yourself about where you and your business is in its life cycle is important.  See your business for what it really is and where it really is and make the best decisions based on your current situation.