Are You Right to Sell Your Business? Part Two: Non-Personal Factors

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Part one of this article discussed the personal circumstances frequently pivotal in the decision to sell your business – namely retirement, seeking a new challenge, medical problems and divorce.

But sometimes it’s not personal circumstances that drive a sale, but factors related to your business, its sector and the economy at large.

The obvious danger is that you sell for financial reasons without being mentally ready to lose your business and accept the attendant change of lifestyle. Having spent years and so much effort building the business, it’s a big change to suddenly hand over ownership.

This is not to say that you should only sell when your personal circumstances allow, but these should be taken into account.

You could offer to stay on in an advisory capacity, which might help smooth the sale, or remain as a director. Be prepared to accept the loss, or at least a dilution, of your executive power – depending on the terms of sale – if you sell the business to a larger organisation.

If you’re lucky you’ll have a convergence of personal and business-related circumstances. Say, for example, you decide to retire just at the point when the business’s value surges or someone comes in with a huge offer – then you’ll be very lucky indeed.

It doesn’t have to be all a matter of luck, though. If you know you want to exit the business 5-10 years from now, then you can put plans in place with the aim of maximising its value to coincide with your exit date.

What follows are the circumstances distinct from personal reasons that drive business sales.

Business value is peaking

The perception that the business value will never be higher than it is now is just that – a perception. It is of course impossible to know for sure whether an asset will rise or fall in value over time, otherwise everyone would win on the stock market.

You can certainly make an educated guess though. A few years ago, for example, astute DVD retailers, unless they diversified, would have exited in the industry in anticipation of the rise of on-demand downloading.

Compelling offer

Every asset has its price, even if football managers sometimes insist their star player is not for sale. If Real Madrid offered £200m for Wayne Rooney, for example, could Alex Ferguson really rebuff them?

If a buyer comes in, unsolicited, with an offer way above what you consider to be its market value, you’ve a difficult decision to make. It can happen, particularly if the bidder believes your business will add significant value to their own.

It could be a wrench to sell if you’d expected to run the business for years to come, but some figures are just too big to refuse. Just consider the leverage you’ll have in financing your next venture, and for all your emotional investment in your current enterprise, your next step could be even more exciting.

Struggling business

Toiling to keep a floundering business afloat can really take it out of you, and it’s not too much of a stretch to identify a link with another reason for selling a business – medical problems. Beset by cash flow worries and perpetually chasing bad debt, it’s perfectly understandable to want to cut your losses.

You’re not likely to raise enough to retire on in luxury, of course, but if it’s affecting your health and family life, then it could be the least worst option. Sometimes a business just needs the impetus of fresh ideas.

It doesn’t mean your incompetent; sometimes you’ve just been in the business too long and things have become stale.

Before you do sell, though, ask yourself if you’ve really examined why the business is struggling, and then whether you’re capable of correcting the problems. Sometimes – particularly in a struggling business – the owner can be consumed by day-to-day minutiae without taking the step back needed to analyse and address the broader issues.

Booming market or economy

You’ve probably heard of the exuberance of crowds. The herd instinct causes investors to panic when economies take a dip and become overconfident during an upswing.

Marketing your business for sale during a boom can yield an unrealistically high price as buyers in optimistic mood are more likely to overpay. Conversely, a downturn can make buyers excessively cautious, or unable to meet your asking price because of a dearth of credit, so – depending of course on your personal circumstances – it’s often worth biding your time until an ailing economy recovers.

You might also choose to sell when the sector you operate in is booming, particularly if you believe the boom is at its peak.

Read Sell Your Business: a Checklist