No person can run a business forever, which means that most business owners will need to consider selling at some point. Some decide to sell a business as they approach retirement while others sell much earlier. The reasons owners sell are as varied as the people themselves. We explore several of the most common reasons for selling a business below.
Lost Interest in Running a Business
Some people go into business for themselves only to discover that they don’t enjoy it as much as they thought they would. Perhaps they feel the hours are so long that it’s hurting their family or that hiring and maintaining quality help is too challenging. It could also be due to declining health, the business not making as much money as expected, or a multitude of personal reasons.
When a business owner desires to give up 100 percent of his or her stake in a company, the liquidation process typically requires offering it to investors for a lower price of acquisition. Those who want to remain partially involved need to undergo the recapitalization process that reduces their interest to a range of 10 to 40 percent.
Disputes with Partners
Even people who have worked closely together in the past and documented everything about a new business partnership in writing may find that the partnership just doesn’t work in practice. The desire by one partner to sell the business may result in selling his or her percentage of ownership to the other partners or shareholders if they desire to maintain the company. It’s only when all partners want out of running a business that a company becomes available for sale to the public.
Strategic or Operational Purposes
Selling a company in full or in part can provide a wide range of strategic and operational benefits, including the following:
- Raise money to finance an expansion: The company wanting to acquire a new business often has the cash available that the seller doesn’t currently have to help expand it.
- Improve market share: The acquiring company already has a broad marketing base, distribution channels, and a known brand that can all help the purchased company expand its share of the market.
- Bring in better management: When one company purchases another, it usually has managers in place with more experience and better skills than the company it acquires. This helps to improve both organizations.
- Diversify products, services, and customer base: Combining two companies allows the parent organization to offer a wider range of products and services while reaching many new customers.
Uncovering the Motivation for a Sale and Preferred Outcomes Can Improve the Process
At KGBV Advisors, we work with people every day looking to sell their business. It’s been our experience that those who understand why they want to sell and who have determined the best outcomes for themselves have the most positive experience. Please contact us to request a consultation to learn more about the process of selling a business.