Why Business Owners Sell
When most entrepreneurs start a business, selling it may never enter their mind. But unforeseeable situations that prompt the sale of a business do happen. These situations can come out of nowhere: a death, terminal illness, divorce, or legal trouble. Other times, it is simply time for the business owner to retire. Strategic and financial reasons for selling includes risk mitigation, favorable tax planning, and maximizing valuation. Personal and operational reasons for selling includes lack of interest burn out, retirement, and a need for financial resources. Let’s discuss why and how business owners of profitable companies should make strategic plans to sell their business.
Selling A Successful Company
Making the decision to sell a business is not an easy one. Knowing when to sell is even more difficult. Talk to any successful entrepreneur and they will advise you to sell when your company is on an upswing and when it is most profitable. Businesses that are doing well are much easier to sell than those that are struggling. Opting to maximize the purchase price when a business is most successful can be a great financial strategy. This allows the business owner to either cash out, start a new venture, or enter retirement.
Common Reasons Owners May Sell
We are all familiar with reasons for a forced sale such as health issues or divorce but have you considered why someone would sell when business is booming? Here are several reasons for the sale of a small business during the height of its success:
- New business opportunity
- Retirement and/or relocation
- Burn out
- Irrevocable partnership issues
- Maximize financial success
When Is The Right Time To Sell My Company?
There is no perfect formula to find the perfect moment to sell. Ideally, once there has been sustainable growth and profits, one can begin considering preparing the business to go on the market. If the economy is doing well and the respective industry is seeing an upward trend, it will be a sellers market with buyers lining up to make an offer.
Obtain Premium Valuation
Businesses that are valued at a premium typically have a high Return on Investment (ROI) and low relative risk (be advised, no company is fool-proof). The key to a premium purchase valuation is having transparent financial records, a record of strong growth, and a high percentage of repeat customers with a diversified yet growing customer base. Moreover, businesses valued at a premium are relatively absentee-owned. This means that the business owner is not involved in running the business on a day to day basis. It is far better to sell when the business may be handed over to the buyer without the seller’s involvement needed after the sale.
Have A Business Exit Strategy
Savvy, experienced entrepreneurs start a new company or buy an existing business with an exit plan already in mind. While some entrepreneurs may want their business to remain in their family for the long haul, a plan for transitioning ownership is still necessary. Making the business a ‘legacy’ for one’s family is admirable but selling at the right place will maximize the purchase price and properly fund the seller’s next endeavor in life. A documented plan is the best chance business owners have for finding the right buyer, getting top dollar, and ensuring a smooth transition.
Use Assistance of Business Broker to Sell
- Business brokers can guide one through the process of developing a solid exit strategy, as well as minimizing costly mistakes made in the selling process.
- They can evaluate the true value of a business and give advice on the best selling techniques in order to maximize the purchase price.
- It is crucial that all of the seller’s financials and company documents are in order even before considering selling.
- Once one has made the final decision to sell, hiring a business broker by signing a listing agreement is always the smart decision.
- This ensures that the seller will receive the highest possible purchase price, while leaving the sale in the hands of a professional.
- The business broker will confidentially sell the business while qualifying all potential buyers.
- That way the seller can focus on running their business without disruption.
There are many reasons for wanting to sell a successful business, but every business owner should know that selling a business when one does not need to sell is always best. That way the business owner is more likely to receive the best possible price for their business, which will allow them to move on to the next chapter of their life.
Give Martin a call today for a FREE business evaluation to prepare your exit strategy.