Partner Article

Knowing when to sell your business

People choose to sell their business for a wide range of reasons.

The most common reason for selling up, according to a survey by BusinessesForSale.com, is retirement. About one in three sellers (34%) polled said they were motivated by a wish to retire.

The second most popular reason for seeking an exit is a desire to seek a new challenge, cited by 24% of sellers.

After that came the decision to relocate to a different geographic area, perhaps even country, a factor in 22% of sales.

Note that the top three reasons are all characterised as personal in nature: they’re about personal circumstances rather than those of the business. The most frequently cited business-related reason, that they had “always planned to sell once the business had reached this stage of development”, only garnered 9% of responses.

There is a danger therefore, that many business owners sell up at a less than optimum time – and that means getting a lower price than they might have otherwise achieved.

Everyone’s circumstances vary, of course, and some will conclude that a desire to retire or otherwise move on is so strong that they’re willing to forgo the spoils of the business’s next stage of development.

But if you’re on the cusp of securing some lucrative new clients then you may delay your exit so you can boost the value of your asset further and finance a more comfortable retirement.

Whatever your circumstances, it’s worth getting an independent valuation from a qualified expert. Is this going to be enough to fund your plans, whether it’s making another investment or retiring in comfort?

Regardless, there’s arguably no point ploughing on if your passion and energy have been blunted with time.

Sometimes a business needs the impetus of a new owner, with a fresh approach, to take it to the next level.

Nine percent of sellers have reached the culmination of a long-held plan to sell up once the business had reached a certain stage of development.

Perhaps you own a restaurant which has reached the upper limits of its capabilities – which would naturally be selling out every night. The only way of boosting your revenues then is to somehow expand capacity or buy an additional restaurant.

If neither option is desirable or feasible then it could be time to sell up. It all depends what you want from your business and what you feel you’re capable of achieving.

Surprisingly, only 3% of sellers attribute their decision to sell up to finding it “increasingly difficult to thrive in this sector”, while a further 3% cite challenging trading conditions. It’s certainly worth asking yourself whether a turbulent trading period is likely to pass. For example, a construction firm in the doldrums has a good chance of recovering if its decline is connected to a recession from which the wider economy is beginning to recover.

However, for some sectors – DVD retail springs to mind – the decline is rather more terminal due to changing technology and consumer tastes, in which case it might be best to get out before your losses accumulate further.

Demographic changes in your area, too, can fatally undermine your business model. Say, for instance, you run a luxury boutique on a main street that is increasingly dominated by bargain stores and cheque cashing outlets, suggesting local incomes can no longer support businesses catering for an affluent demographic.

Similarly, if a major competitor, especially one with vastly greater resources, enters your market, you may want to assess the robustness of your market position.

Alternatively, things could be going swimmingly when a compelling reason to sell arises: an unexpected, unsolicited offer that eclipses any reasonable valuation. At this point you have a big decision to make.

Sometimes the decision to sell is highly premeditated, taken long, even years in advance; at others it’s foisted upon you very suddenly.

Whatever ends up driving the sale of your business, it’s always worth building a business with a sale in mind from the outset. After all, a business that is attractive to customers should be attractive to prospective buyers too.

This was posted in Bdaily's Members' News section by BusinessesForSale .