In this article, Enrique Quemada, ONEtoONE President, tell us the 10 most common reasons why entrepreneurs sell their business. Let’s begin!
Internal and personal common reasons why entrepreneurs sell their business
1. Preparing for retirement: this is a very personal reason to sell a business. There are businessmen who, at 55, decide they have enough money and “have done it all”, they no longer feel the urge to continue fighting and would rather focus on other pastimes, such as travel. Others prefer not to retire until 70. If a businessman is 63 and wants to sell his company and retire in two years, it is always a good idea to start preparing the company for sale.
2. Health problems: you only live once and if your health fails you it may be best to let go of the company so that you can spend the time you have left with your family, without the trouble and demands of your company.
3. Lack of interest in continuing the business on the part of the children or a lack of preparation: the owner must understand and accept that his children want to pursue different paths from him.
4. Conflict of interests between shareholders: one of them doesn’t want to continue or there are disagreements about the correct course for the company. This makes decision-making difficult and compromises the competitive future of the company.
5. Need for a new injection of resources: The need for capital increase in order to stay competitive is very common. It is possible that an owner, especially when he is getting along in life, isn’t willing to reinvest the capital that he has made from the company and prefers to sell.
DOES YOUR COMPANY NEED A NEW INJECTION OF RESOURCES? HAVE A LOOK AT “REACT TO YOUR COMPANY’S NEED FOR CAPITAL BEFORE IT IS TOO LATE“!
External common reasons why entrepreneurs sell their businesses
6. The entry of a powerful competitor into the sector: sometimes a company has developed a market and made it attractive enough for a bigger player to come in as a competitor. This is what happened with Netscape in the browser market when Microsoft appeared. Netscape resisted, and failed.
7. End of an upward economic cycle: the mature businessman faced with a cyclical change decides to sell the company. As a businessman once said to me, “I’m already rich. I don’t need to spend the last years of my life fighting an economic crisis”.
8. You receive a good offer for the company: upon analysis of the offer, it is clear that more value will be obtained accepting the offer than continuing to manage the company. This means that the buyer is paying a price greater than the embedded value and is sharing, as we will later see, the value of synergies or, simply, overvaluing it.
9. Changes in sector regulations: for example, new phyto-sanitary requirements may mean significant investments that make it impossible to be profitable given the current size of the company. One way to survive and keep the existing value of the current capacity (clients, brand, products, and technology) is to become part of a larger group.
10. Change of business or simultaneous dedication to more profitable companies that require more attention: sometimes you find that another business you started is more profitable, requires less effort, has a brighter future or, simply, brings you more satisfaction.