6 reasons to sell your business
There are 6 key reasons to sell your business – or why you might want to sell a full or partial stake in your business to an investor
1. Your Business Needs Capital
Your business is growing fast, new markets beckon and new machines have been developed that improve your product.
You could take a loan from the bank or borrow from an alternative style lender – or you could sell a portion of your business to an external investor.
Remember – when you’re selling your business you don’t need to sell all of it, a partial stake can be very attractive to an investor.
In the shorter term, this might be a very attractive way of bringing capital into your business – after all, it doesn’t cost you anything apart from an adviser and legal fees. But you’re giving up some degree of control of your enterprise – and it can take time and be a very distracting process.
Often an investor will demand first refusal on any further stake that you might wish to sell, which can mean that at some point in the future, you lose control over your business. So as the Romans didn’t say “Caveat Venditor!”
Consider carefully in this situation whether taking on debt might be a quicker, cheaper, and less distracting way of funding growth.
2. Your business is in financial distress
Whatever the state of your business’s financial situation, there will often be an investor who will be interested in buying.
However – they have to believe that it can be turned around. Remember that a buyer will always take a hardheaded approach. If they think that the real value of a business is its assets rather than it as a going concern, then it may be cheaper for an investor to buy your business’s assets when it’s gone into receivership.
Timing, therefore, is everything. If you know that your business will be struggling in the future, the earlier that you decide to exit the more likely a successful sale will be.
It takes time to sell a business, so remember to factor this into your thinking when selling a company that is struggling.
3. You’re ready for the next challenge
It’s a rare owner who sits down one morning and decides that the company is just too big for them to run it any more.
What does happen, more often, is that the owner decides that it just isn’t as much fun running the business and that they are unwilling to put in the massive amounts of energy needed to take it to the next level. This is often the case when a business has been inherited or has been grown over a substantial period of time.
If there is real potential for growth with an enhanced team, funded and driven by a new owner then an investor is likely to be very interested in the business – not least as these opportunities come along rarely
4. A market bubble
Sometimes an offer is just too good to turn down. If you’re suddenly the owner of a business that’s in the sexiest business sector in town – or there’s a wave of consolidation driven by competing investors with deep pockets – then now may be the time to sell.
Often an owner, with all of their sector expertise, will go on to found a competing company as happened several times for people like Martin Long with insurance companies such as Direct Line and Churchill.
The most common reason for selling a private business is that the owner wants to retire. They’ve put in the hard yards, they’ve worked the long hours and dealt with the day to day stress of running their business, and now it’s time to hand it on to the next owner.
Often an owner will have considered handing it on to the next generation – but more often than not the family is not as focused on the running of the business as the founder has been. The real value is not in handing it on in this situation, but in selling to someone who does have the driving passion for the business
6. Death, Divorce, and Disease
The tough ones – but very often a significant proportion of a family or individuals worth will be tied up in a company. When it comes to funding inheritance taxes or alimony payments, often the whole or some of a company’s equity will have to be sold. Making sure that this doesn’t have to happen in a hurry is key to deriving maximum benefit from a sale. Unfortunately, this is not always possible.
After reading all of these – why not check out our great Learning Centre which goes into all the detail behind how to prepare and successfully complete the sale of your business for the best possible price