There are many reasons why business owners and founders sell their businesses. Their reasons vary based on their individual lifestyle and financial situation. There is value in most businesses and companies so if you’re ready to move on there is always likely to be a buyer for your business no matter the reason for your decision to move on.
If you intend on buying a business, it is always a good idea to learn about the general process so that you don’t fall for the usual traps.
This is a list of the most common reasons business owners choose to sell so if you are considering selling your business, you may relate to some of the reasons listed below.
1. Selling due to retirement
Most business owners only take a salary and spend years if not decades growing their business. As a result, most of their financial net worth is tied to their business. Many business owners we speak to don’t have as much super as they’d like to or have very little due to mismanagement.
Retirement isn’t cheap so when it comes time to retire, it makes sense for many business owners to sell up and cash out. Don’t wind up your business if are planning on retirement, as you could lose out on a nice windfall!
According to some studies, retirement is the leading reason
2. Relocating and no longer can run business
People move for personal reasons and for someone working nine to five, it’s very easy to change jobs. For many businesses, it can be very difficult to relocate depending on the nature of their business. If they have clients in a certain region and they move interstate, it will be extremely difficult to service them properly.
Many business owners often buying a similar business from the proceed of their sale. From a valuation perspective, this shouldn’t be detrimental as long as you’re not in an immediate rush to move.
3. The business being sold is performing poorly
There will also be businesses that do not perform well. Owning an under-performing business is not fun and can feel like you are constantly underwater. When it reaches that tipping point, it is generally a good idea to sell up and move onto greener pastures.
Lucky for you, there will always be an entrepreneur looking to buy this type of opportunity and flip its fortunes around. This type of business sale is quite common and you should not be deterred from selling just because your business is under-performing.
4. The owner found a job and wants to leave the business
For many of the readers on our website, business is life but not everyone enjoys owning their own business – to each to their own. For the ones that don’t enjoy it, going back to work to receive a steady income with perks such as “annual leave”, “sick leave” and “superannuation”. No more working late nights as well!
5. Owner wants to capitalise on business
A business owner might sell up if the market conditions are right and their business performance has been above expectations. If a business has been performing poorly but in the past year or two has had amazing profits. They may sell up in the hopes that a buyer will pay a higher valuation.
This is especially the case if the economy is doing well, credit is cheap but may head into a downturn. Rather than risk having an average year or worse a bad year, they will seize the opportunity to sell at a premium.
6. The owner has another business
For business owners have multiple businesses, some of them may wish to redirect their attention to the businesses that provide the most value to them as an owner. It could be that the business they intend to sell is too small for the appetite of the owner but disproportionately taking up too much of their time.
There are too many reasons for business owners choosing one business over another but the business being sold could be an amazing opportunity for a potential buyer.
7. Selling to pursue other opportunities
There are some owners that wish to move onto other more lucrative industries or businesses. Being an existing business owner, their most valuable assets are probably either their home or business. Selling their existing business is just a means to raise capital for their new business venture.
8. Poor health or personal issues
Running a business can be extremely demanding for the owners’ physical, mental health and can cause a litany of personal issues. Unfortunately this an extremely common reason for selling a business. Many small businesses are highly reliant on the owner so when that owner becomes ill the business will also struggle. Some owners will pre-emptively sell their business knowing well in advance that their health will only deteriorate further.
9. The business is in high demand
Sometimes an offer is just too good to refuse. If there is a strong demand for a specific business or industry, owners will sell up to a larger company looking to grow through acquisition.
10. Lifestyle change of owner
Business owners commit a large portion of their time to their business and as a result family time is neglected. This is extremely common among the SME business community. Sometimes an owner will sell up to spend more time with family.
There are many reasons that business owners sell their businesses. It is also one of the questions you should ask when buying a business. Prior to buying a business, you should learn more about the questions you need to ask the seller of the business and the business broker.