When is it Time to Sell Your Business?
As a business owner, there will often come a time when the decision is made to sell the business you have worked so hard to create. For owners that have had a predetermined exit strategy in place and have met the target goals they set for themselves, this can be the final step in what has been a successful venture. Other times the sale may be out of a desire to pursue more exciting or rewarding interests when the current business is no longer providing this result. While other reasons could be more negative and out of necessity to try to salvage what they can from a business that may be in trouble or in an industry that has evolved to a point where the product or service they provide is no longer relevant. This can be a very difficult decision for most however, regardless of the cause there comes a time when it is common for many owners to decide it is time to sell. Below are some common reasons behind the owner’s decision to sell their business.
1. Burned Out.
Just like any other career choice, business owners may reach a point where they have simply become burned out in running their business. Many owners are entrepreneurs that are driven by the initial steps of starting the business which can include searching for the perfect location, analyzing target demographics, and finding finance solutions. They also may be more managerial and could be motivated by staffing the company which includes recruiting and developing the organizational structure, creating the desired corporate culture, and coaching/molding employees into great managers. Once a business has become more stable and capable of sustaining itself through general operations some owners my become bored and lose interest. Certain people may thrive on what may be considered more challenging and stressful, while others may enjoy the stability and motivation of trying to grow the day to day operations. Regardless of the motivation behind it, once the owner reaches a point where they do not enjoy what they are doing they may begin to look elsewhere for opportunities and could reach a point where they are ready to sell even when their business may be thriving.
2. The Company Has Outgrown the Owners Skillset.
Many successful companies require a change in leadership somewhere along their growth cycle. It is common that owners play a large role in the development, growth and even daily operations of an organization. When these companies begin to grow in revenue and size they often will require a change in organizational structure as well as added leadership in new areas of the company. While some owners are equipped the skills required to effectively grow and adapt their skills required, many business owners recognize the need to appoint leadership in areas where they otherwise would have previously led. This could even include the hiring of a CEO or president to lead the entire group. While transferring the key responsibilities to someone else can have its benefits, it is not without its risks. Any transition should be well thought out and implemented over meaningful period. It is also recommended that key performance metrics and dashboard reports be provided and reviewed on a consistent basis so the you can maintain some level of control and identify problems quickly so that you have enough time to intervene before it is too late.
3. Changes in Demand Due to Industry Trends.
Depending on the business some markets can be more volatile than others. A change in industry trends or innovative new technology could have a profound impact on the performance of the business. Once this happens some businesses may slowly become irrelevant and begin to lose market share. Not surprisingly, according to Investopedia, Technology has been the most volatile sector as of late. Followed by Consumer Discretionary, which consists of retail, media, consumer durables and services, apparel and automotive. Third on the list was Energy which includes oil, gas, coal, and renewable energy technologies. While these sectors can be very lucrative when companies are able to stay ahead of the curve, others may not be so adaptable and as a result may become less relevant. This can often lead to the decision to sell before the company becomes entirely obsolete. Below are the top ten riskiest industries according to research provided by IBISWorld.
4. Potential Acquisition Target
Another reason owners decide to sell their business may be because of the success they have achieved from creating a successful company. A big part of some company’s strategy for growth is through merger and acquisition prospects, and there are many factors that determine the desirability of a company for acquisition. Some have a great management team and efficient operations. Or some companies may have innovative proprietary production systems in place. While other companies may be pursued because of the clients they have been able to earn. With acquisition a company can diversify their client base immediately by targeting another business in the same industry but with a completely different following. All these reasons can benefit a larger company who would save time and energy by buying an existing business with these benefits in place rather than trying to develop it themselves over a longer amount of time.
As you can see, various circumstances can lead to an owner’s decision to sell a business. Some are as simple as losing interest and the desire to pursue the next best thing, others can be due to loss of relevance caused by changes in a volatile industry, while others can be from the attraction of a larger company looking to build their business through strategic acquisition. Whatever the cause it is important for business owners to recognize that selling their business is a likely outcome at some point down the road. Whether the sale is through success or out of urgency, it would be wise for owners to begin to strategize towards that end as soon as possible to stay ahead of the curve.