Why Do You Want To Sell Your Business?

Why is the business for sale is, the first question asked in any business sale. And it's an important question to think through before starting the process as the answer can have a significant impact of the value of a business. So this article covers the reasons you may want to sell and why you need to think through both what they are and what they mean to you.

There are many reasons that business owners choose to sell their business. Whatever yours are, you need to decide that you are serious about selling your business, as it is not a decision that should be taken lightly. After all, once your business is sold, it is sold. In addition, the process will take up an enormous amount of time and effort and will cause significant amounts of disruption to the business as and when customers, competitors, employees and suppliers find out that it is being sold.

Nevertheless, if you have successfully grown a business, sooner or later you are likely to consider selling it. In addition to disposing of all the worries and responsibilities, you will be looking to reap the financial rewards of all the hard work that you have put in over the years.

However, the prospect of a sale for an entrepreneur (who has often founded the business) can create mixed emotions.

On the one hand there is the prospect of realising the value of the business that has been built and obtaining both financial freedom and freedom from the demands, risks and worries of running a business.

On the other hand, letting go of your baby which you have sweated and worried and slaved to build, can generate a strong sense of loss, particularly if you feel responsible for the prospects of staff and managers left in the business.

Many owner-managers therefore find it harder than you might expect to decide whether or not they ought to be selling the business and so the principal reasons for selling divide into a number of personal and business requirements.

Banking The Money

Often much of your personal wealth will be tied up in your company. A sale of the business therefore offers the principal opportunity to convert this holding into cash which allows you to diversify your wealth across a range of different types of asset and investments, thereby minimising your exposure to the particular business's health or otherwise, and to enjoy the benefits of having created a successful business.

Reduction Of Risk

Often in the early days of a business, despite the legal status of limited liability, you may have had to put up personal security in order to obtain bank funding, or even to give personal guarantees in order to obtain certain supplies, ranging from property leases all the way down to a photocopier. The effect of these personal guarantees is that you are liable for the debts of the company in the event of the company's failure, and often such personal guarantees given in the early days of business, have never been fully removed.

In addition, your responsibilities as a director grows ever more onerous with every piece of legislation and, for example in the event of insolvency, directors face the prospect of potentially being made personally liable for the company's trading losses. It can make sense therefore for you to seek to reduce your exposure to such risks by selling the business to others who are willing to run it.

Health Concerns Or Retirement

The above points are particularly relevant when the owner-manager decides it is time to retire or their health starts to fail. In fact, many businesses are sold not because of any financial considerations, but principally through some change in the owner's life; however many entrepreneurial business owner-managers seem to thrive on the activity and mental challenge of running their own business well into their 70s and later.

Boredom

Entrepreneurs and owner-managers are human, and they do get bored. Those who are highly entrepreneurial may find that once they have established a business they sooner or later become bored with running the same thing and wish to move on to new projects while others become bored with living under the continual pressure, and decide they wish to pursue other interests, seek to retire, or occasionally, seek to hand on the administrative and managerial aspects to others in order to concentrate on the particular aspects that they love.

Money To Grow

The faster your business is growing, the greater will be its demand for working capital to meet its expanding trading, together with investment capital to support it in exploiting new opportunities. For this type of company, achieving a sale of part of the owner's interest can be the route to acquiring the capital needed to tackle the opportunities that arise, but this will naturally involve some form of loss of control of the business in return for the external capital introduced. In these circumstances an entrepreneur has to decide whether the opportunities offered by this extra money compensate for the restrictions on their independence.

But if you are thinking about selling however, it's also important to think through the implications for your personal life. How will you feel once you have sold up? What are you planning to do next? Have you even thought about it? So when deciding whether you wish to sell, you need to consider not only your reasons for selling but the implications of doing so for you and your family.

If you are considering retiring, bear in mind that your business environment gives you a high degree of structure to your life. Moving to a position of retirement will be a major change in lifestyle for which you need to prepare. Therefore, seek out other business people who have sold up and talk to them about both the process and the impact of having sold up on their lives, their relationships, and what they have gone on to do.

So in summary, when you decide to sell ensure you have a good reason to sell (that is logical to the buyer). They will want to know why you are selling. The more valid your reason for selling, the more serious the buyer will be. If you do not appear to have a valid reason for selling, the buyer will be suspicious and think you are selling because there is something wrong with the business that he has not yet spotted or you are not serious about selling. If he is suspicious about the business he will not pay you as much for it.

But also ensure you have a good reason to sell which makes sense to you in terms of what you want to do with your life next.


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Mark Blayney is the author of How to Sell Your Business For The Price You Want. For more information on grooming a business for sale, or a free copy of his 21 Golden Rules e-book contact him at: http://www.growgroomgo.co.uk