When it comes time to sell, business owners have a variety of reasons for putting their business on the market. For some, a sale is the long-anticipated outcome after a lifetime of hard work. For others, a sale is triggered by burnout, illness, or an unexpected change in situation.
The factors that drive you to sell can play a significant role in the sale process. Your motivations, and desired outcomes, affect how we market the business, which buyers we talk to, and how we negotiate terms. Ideally, the end results align with your original motivations.
Generally, business owners are concerned about getting the best possible value for their business. But money is not always the top priority. Many times, sellers are also concerned about legacy issues, timing, and how involved they might have to be in the business going forward.
Over the years, I’ve seen about 10 core reasons business owners sell: retirement, burnout, skillset, legacy, new opportunity, health, family issues, risk, recapitalization, and timing the market.
Retirement:
You’ve had a good career and now you’re ready to move on to more leisurely pursuits. You want more time and more freedom.
Burnout:
You’re stressed, worn down, and out of energy. Maybe you’re having financial challenges, human resource issues, or ongoing disagreements with a business partner. Or maybe you’re just tired. Whatever it is, you’ve had enough, and you want out.
Skillset:
The business is growing faster than you can manage. Your company, and your employees, would benefit from someone with different skillsets, different connections, or a higher tolerance for risk.
Legacy:
You’re concerned about your company, your employees, and maybe even the larger community. You want to set your team up for success and make sure the business can succeed after you’re gone.
New opportunity:
You have an attractive new business opportunity available, or maybe even a lucrative job offer, and you want to redirect your energies.
Health:
You’re facing a personal health challenge.
Family issues:
Something in your family situation is prompting you to sell. Maybe it’s a divorce, ongoing conflict about your working hours, or a loved one’s health crisis.
Risk:
Your entire net worth is tied up in your business and you want to sell in order to diversify. You want to take some chips off the table by selling a minority or majority ownership stake.
Recapitalization:
Your business would benefit from increased investment that you aren’t capable of or don’t feel comfortable providing. Recapitalizations are often closely tied to risk issues, as business owners nearing retirement may be hesitant to take on new debt (and the associated risk) in later years.
Timing the market:
You know that market conditions are good, and you want to exit when you have the best chance of getting top dollar for your business. You know you don’t want to hold on through another recession, so you’re selling while the market is still strong. You’ve calculated what you need to live your ideal life and the business value has reached the point where it can support those goals.
As you consider why you’re selling, consider your post-sale priorities. How soon do you want to be able to walk away? Would you consider remaining involved as a consultant, partner, or employee after a sale? Do you have pressing financial issues that require an immediate cash payout, versus potentially greater value recouped over time?
Get clear about why you’re selling and what outcomes you want. This helps your M&A team target the right buyers and craft the right marketing messages.
You might think that the more flexible you are in your terms, the wider your potential buyer pool. But, and this is critical, you have to be honest with yourself and your advisor about what’s truly going to be important at the closing table.
I’ve seen business owners shut down a deal at the last minute when they finally had to look the reality of certain negotiations in the face. Time kills all deals and an “eleventh hour” change of heart can damage your business, your reputation, and your chance of selling to a different buyer in the future.
The buyer pool is large and active right now, so you’re better off targeting buyers who will match your ideal sale scenario. The alternative, ‘I’ll consider anything’ model has dangerous potential to bog down the sale process and waste valuable time. You might even turn away would-be buyers who are looking for sellers with a more targeted, defined exit strategy.
Talk to an advisor about what you want out of a sale. They’ll help you understand what’s possible in today’s market.