There are many different economic reasons for selling a company, and each owner has his or her senses. However, the reasons can group them into three main aspects: personal, family and financial. It is usually a combination of multiple reasons, both personal and financial. At ONEtoONE Corporate Finance, we want to help you with this challenging decision. Thus, we bring you the most common reasons for selling a company. In this article, we focus on the economic part; however, if you want to know more excuses, you can download our Ebook :
The company receives an offer:
On numerous occasions, a company directly receives an offer from the buyer. Most of the time, managers doubt if it is the best option. If this happens to you, you will need good analysts to advise you.
Need for a new injection of resources:
On many occasions, companies need an increase in resources and goods. In the times we live in, everything changes very fast, and technology is increasingly advancing. For many businesses, this condition becomes unsustainable due to the need of constant investments. On these occasions, the business owners may conclude that it is better to sell the company than to continue investing in it and continue losing money.
Concentration in the sector:
When a sector tends to concentrate, it is an excellent opportunity to sell a company. In this circumstance, the business that is acquired is highly succulent for the buyer and, therefore, there is more negotiation margin and possibility of profit. We are currently experiencing a trend towards concentration in almost all sectors, especially those related to technology.
Sometimes a business can see its margins decrease over time. The company stagnates in a medium size in which it cannot benefit from the advantages of large companies, nor the flexibility of small ones. So, the owners may be interested in selling it to another one that can bring them more size, more profits and a reduction in costs that will increase the profitability.
But if there is a situation that has put the world economy in check and has led to numerous sales, it is the current Coronavirus crisis. The pandemic has dramatically affected the business environment. That is why, as our president Enrique Quemada wrote, a large number of M&A operations are taking place daily worldwide. This situation leads to a high number of companies wanting to buy others, which means that is a great opportunity for you to sell.
Whatever your motive is, the sale of a company always ends in profit, in success.
How to identify your target customer? You must choose which type of customers you want to serve. Wishing to help everyone is a mistake, just like it would be to cover all the needs in your customer segment, or trying to imitate every new idea. Many companies are living a “herding behavior,” following the leader´s steps and comfortable in vulgarity.
Reflect on which customer segment your company has the more potential to create a unique offer that covers a type of unattended need. Once discovered, be willing to renounce on the other types of customers that don´t have such a need for that service.
Insurance company Progressive discovered a poorly-served collective. Those with alcohol abuse or risk behavior history had great difficulty in being accepted by insurance companies. They tackled this collective, which had few alternatives, and which, in turn, allowed them to charge higher premiums. Thanks to their ability to handle information, they were able to identify segments within this collection that didn’t pose such risk, like drivers with drinking history but also parents with small kids.
To add real value, you must step in the customers´ shoes and understand their behavior. Try to understand the psychological reasons behind their purchases. You must feel how they feel. Don’t project your feelings to the market. Think about their concerns, needs, preferences, thoughts, hopes, relationships, and daily routines. For this, it’s essential to see them in action:
How are your customers?
What are their personalities like?
Whom do they identify with?
What are their hopes?
How do they see themselves?
Try to think as customers do. Don’t focus only on the features of the product or service, but on the benefit to the customers, on how they perceive it, on the psychological value. What do customers really value? What touches their core?
Customers buy solutions
See your customers as strategic assets and innovate around them, not around your products or services. Instead of thinking about the product used by the customers, think about the problems they have to address. Customers don´t buy a drill, they buy a hole. They don´t buy a service, but a solution.
It requires empathy to understand the feelings of a type of user and their frustrations. That’s why many business models have been born out of users’ frustrations.
Dropbox Case Study
Dropbox is an example. It was founded in April 2007 by Drew Houston, a 27-year-old man. The idea came to him while on a bus when he realized he had forgotten his pen drive. He decided to program service for synchronizing and sharing files between computers on the Internet. This way, he could always have access to the latest version of documents.
Every job has a functional, emotional, and social dimension. You must decide who will and who won’t be your customers. Ask yourself: ç
Who are my direct customers?
Who are my final customers?
What issues do they have?
What can I do to address these issues?
How do these customers use existing products to satisfy their needs?
What can make me different in a way that makes these customers interested?
Making customers your fans
After knowing who is your target customer, you have to make them your fans, you must give an overabundance of the feature they value the most. Focus your efforts on attracting and engaging fans – those who can be most interested and most loyal. They will help you spread the message among their peers. Turn them into your army.
It´s about closing the space between problem and solution, between what is and what could be, between the existing experience for users and the one they could have. But be careful, you must solve real problems, not ones created by you.
Maybe you can create a new class of customers that didn´t exist before like FedEx did when they developed a new market for those who wanted their packages to arrive in just one day, guaranteed.
Net jets found that business travelers had two options in two extremes, either they traveled on a commercial plane, enduring all the discomforts of an airport, or they had a corporate aircraft, with the enormous costs this implied. They understood that there could be a middle-ground formula, allowing executives to rent a private plane whenever they needed it.
After analyzing what the customers want and your capabilities, you must look at competitors and alternatives to see if there is something that will make you different in the eyes of those customers.
Naturally, the strategy is to satisfy the customer and gain a profit while doing so, that´s why you must ask yourself if the customer is willing to pay the price you have to charge for it to be profitable for the company. Thus, it’s about creating value for your customers and being capable of capturing value for yourself as well.
Next steps after knowing who your target customer is
Knowing who is your target customer is vital, and that is a great first step. Though, you must think that the strategic management of a company has many other areas that business owners must pay attention too as well.
It is about a collective approach towards dominating all the areas of your company through the right strategy, depending on your goals, industry, and many other factors.
Our CEO has written an excellent book that will help you get a glance and overview of how to achieve this. Fill out the quick form and download it today.
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The professional life of a business owner is made up of different stages that are constantly being overcome. The question is: which is the last stage that the business owner should reach? Usually, this happens when the following conditions come together:
Having reached professional and economic success.
Being relatively close to retirement.
Feeling dissatisfied and unhappy towards your business or work.
When these patterns come together, we are clearly in front of a situation that requires a change in the focus of life. This means that probably the original purpose from which the company was created has already being achieved, and hence its value has been lost. This is when the moment of considering a new life purpose, that goes in accordance with the current situation of the businessman, arrives. At this point, many reasons to sell a business may start to appear in the mind of a business owner.
Two main reasons to sell a business
Working in our sector, we have witnessed wonderful stories of different business owners that have explained to us the main motives why they were selling their company. Usually, there are two types of reasons, economic and personal. Maybe you can relate to some of them. Let’s take a look:
A new competitor: We have seen many cases in which, within a sector, big corporations were acquired by strong venture capital institutions. This may be a scary trend for business owners that compete against such organizations, since they have less resources to stay in line. Therefore, this situation gives them a good reason to sell their business.
Decreasing profitability: This is always a strong sign for selling a business. In some cases, we have witnessed that the aggressive competition in the industry threatens companies that are not well structured internally. Therefore, they become less profitable with time. Don’t let his happen and read the signs, you might still be on time.
Need of capital injection: We live in extremely fast advancing times. For some businesses, it’s hard to adapt to the evolution of the industries, since this requires a huge investment. Competition may evolve faster and put your business in danger. The need of capital is a good reason to consider selling your business.
Retirement: This is one of the most common reasons for a business owner to sell their company. Many owners have gone through a long path to build their company from scratch. It is hence normal for a business owner that has reached professional maturity, to feel tired and in desire of some peace and quiet at last.
Change of lifestyle: This motive goes in hand with retirement. Business owners usually seek fulfillment in other aspects of life once they reach professional maturity. Some want to dedicate themselves to giving back to society, others want to spend time with their family, and others simply want to enjoy the perks of a good life.
Health Conditions: Owning a business is extremely stressful and requires the person to be in an optimal state of health. Sometimes, nature denies this privilege and selling the business may be the best option to avoid losing all the effort and investment of a lifetime.
After selling the business, many business owners stop experiencing the sensation of dissatisfaction and unhappiness. They are able to make a decision that allows them to confront a new professional challenge. Moreover, they can choose to do something that contributes to society and their loved ones.
Despite this, many business owners fear to finish their professional stage. It is common that they have uncertainty about what might happen after the sale. However, once the company has been sold, the businessman enters a new phase in his life full of freedom. Now that they have complete control of their time and resources, they can focus on their life, new objectives, and even dreams.
Moreover, the predominant sensation is of pride and satisfaction thanks to a good company valuation and a successful sale. The business owner sees how the efforts and hard work are recognized and will continue to deliver results for many years to come.
Having said that, if you need further information about the selling process of a company, we put at your disposal our team of highly qualified advisors. When there are more than a few reasons to sell a business it’s time to ask yourself “the” question.
Which are the principal barriers of selling a business? Do you know how to deal with them? The matter at stake is a complex process that requires the assistance of a consultant service that provides trust, transparency, and confidentiality to the business owner.
These are the three principal barriers for selling a business:
Dealing with confidentiality.
Giving trust to the advisor figure.
Knowing how to find the best buyer.
Dealing with confidentiality
The desire of selling a business comes from a variety of reasons. For example, wanting to embrace a new adventure, feeling that you have “already done it all” or the tiredness of a long professional journey.
When protecting the confidentiality of selling a business we always have to understand the importance of leaving aside personal interests in communicating this decision, since these can affect business development.
It is of vital importance to know how to manage the following aspects of confidentiality when selling a business:
Confidentiality in the internal atmosphere of the business owner:
Many owners make the mistake of communicating this decision to their internal staff too soon and without the necessary cares. When this happens the probabilities of losing competitive strength increases, talented employees notice a lack of leadership and look for other professional exits and the snowball begins to grow to the point that a great business may fall apart.
Because of this, it is vital that the owner communicates this to the precise people in the correct moment. Also, a positive and good attitude should be maintained within the company, independently if the selling of the business will happen or not. This way, employees will be consistent with their good work and the rentability of the company will not be damaged.
Confidentiality in the external atmosphere of the business owner:
One of the greatest fears an owner has when thinking about selling his business is that they see their competitors as the only possible buyer of their company thanks to a lack of knowledge and information. Owners do not know about the techniques of how to manage confidentiality or strategies that allow them to find other buyers aside from their competitors. As a result, owners are paralyzed because of fear and they let pass what can be a good selling opportunity.
Lets take into account that the process of selling a business begins the moment the business owner first thinks about it. To avoid making these mistakes it is vital the support and guidance of a professional consultancy service that provides a high level of transparency and trust.
Confidentiality is just one of the principal barriers of selling a business. The owner also must know how to work with a team of advisors that are well qualified, have experience and can land a successful operation.
Giving trust to the advisor figure
There are many types of advisors out there who can be presented to the owner as facilitators, brokers, consultants, auditors etc. In most cases these so called “advisors” do not maintain an adjusted profile and that is the reason many operations do not succeed. This process requires and demands the advisor to manage techniques and knowledge that only professional M&A advisors know.
Therefore, when you think in advisors, you must seek for those whose professional nature is adjusted to what you are trying to do, in this case selling a business.
Either way, to avoid working with a pirate advisor or someone that doesn’t have the capabilities to carry out a corporate operation, listen to different financial advisors and then check out their success history in similar operations. Remember that correct guidance leads to a successful sale.
Therefore, it is important to let yourself be guided by the right advisors so you can also find the ideal buyer for your business.
This is why it is important not to make the mistake of selling the business to the first company or investor that makes an offer. The business owner should not make the decision without a previous in depth search and a good analysis of all the possible offers and opportunities.
Overcoming the principal barriers of selling a business
Thanks to the complexity of this process, the importance of what is at stake and the dynamics that a corporative operation demands, our recomendation is to continue this process by the hand of expert advisors with enough experience and history that can help you overcome these barriers. If you are interested in selling your business contact us and we will help you.
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What comes after the sale? Most companies are born from a dream and when that dream is fulfilled another one is born. Therefore, after enjoying professional success and having conquered the business world, what will that new life focus be?
If we keep climbing the mountain that has already been conquered, then we fall in the hands of inertia and redundancy. That’s why the business owner needs to think about a new mountain to climb, one which is not build on success, but on sense.
It is normal that any professional that comes close to maturity feel the need to give back to the world what he has received. It is here when he understands that we only live once, and that true happiness is found in giving. This translates in leaving a legacy.
What does leaving a legacy after the sale means?
After the sale of a business we have to think about living for the wellbeing of others and not for ourselves. It consists of being thankful for the privileges you had and change the focus of your life objective. In this case, an objective that is defined by the number of lives impacted, instead of the size of the bank account.
When the business owner reaches economic success, he discovers that there are two sources of unhappiness in life:
Not getting what he wants
Getting what he wants
He undesrtands that it is not enough having a prosperous life, but it should be productive by generating good for others. He gets that he has lived for efficiency: doing things right; but he has not been effective: doing the right things.
When the answer to the next questions are not fulfilling, it is when the owner realizes that something must change:
With what amount of profit will I be happy?
Will I keep on moving forward with the same old objective and never reach and end? Or should I explore new opportunities?
Have I become a prisoner of my own success and business?
This is when the owner begins to dream with having more control over his life. He sees that he has the experience and tools to produce a positive impact that goes beyond his salary and dedicates himself to improve the life of others.
Here is when a new adventure begins, and the first step is to sell the business. The investment that will be done now will not be to generate more wealth, but to give to a bigger purpose. It is the beginning of a new dream, an opportunity to channel energy and resources towards a goal that supports others. With this in mind, the owners reach freedom to choose what he wants to do with his life, which results in an unimaginable level of happiness.
Clearly there is something more in life than just business. A lot of businessmen should ask themselves: What is my true purpose? What do I want to be remembered for? Our success will be empty until we add meaning to it. It is about a change of heart, perspective, and priorities. Have in mind that you are not what you want to be, but you are what you do. If you are unhappy, decide and act now, we only live once.
Many business owners reaching the end of their professional career should get familiar with the selling process of a company. Without a doubt, this is a complex process that has to be dealt with extreme care and attention in order to protect the main interest of the business owner: selling the company at a fair price.
Taking into account that all the phases of a corporate operation are highly important, in the following article we will analyze the most delicate points present during this process. This way, you will be more prepared for when you consider selling your business. These points are the following:
Know how to value your company to set a fair selling price
Find the ideal buyer for your company
Understand the due-diligence process
Understand the structure and functions of an SPA
How to value your company and why it is important
Maybe you never thought about how to value your company because you were not aware about the importance this factor has in the M&A world. Nevertheless, knowing the value of your company is vital for a successful sale.
A lot of business owners ignore the importance of making an in-depth valuation analysis, this is essential not only for a good sale but also so that we can apply improvements within the company and upgrade its performance. Generally, what we believe a company is worth differs with what it is really worth.
The valuation of a company is a technical analysis that requires a deep and fundamental financial know-how. The first step is to determine the characteristics and factors that provide value to your company so an educated guess can be made. If you want to know more click here.
To sum-up, knowing how to value your company is ideal for:
Preparing a good negotiation and being able to maximize the price of the company.
Finding a middle ground between the two parts as the views of the buyer and the seller tend to differ on the value of the company.
Understanding the position of the company in the market compared to competitors.
It is important to know how to value your company, but also finding an ideal buyer for it. You need to find a solid offer as well as a buyer that will transmit confidence and tranquility to the business owner. And this is no easy task.
The search of the perfect buyer and a good negotiation are key elements for a successful sell that reflects the hard work of the business owner. That is why it is important, first, to avoid falling in the mistake of selling the company to the first counterpart that makes an offer, and secondly, to know how to identify a good alternative.
To be successful in this step of the process it is necessary to answer three questions:
Which are the different types of buyers?
How to know if a company might be of interest for a buyer?
What are the research methods for finding ideal buyers?
The question is: How? This general overview can help.
Types of buyers:
Knowing the profile of the businessperson or entity that is willing to buy your company is key. The 6 main types of buyers are the following:
Companies from other sector
Analyze or identify what type of buyer is suitable for you is not easy, therefore it is important to know the different interests each buyer has and if your company matches them. Due to this, it is important you are aware of the following matters:
Knowing the trends in the sector and the participation of the buyer in it.
Knowing the distribution of the different business lines of the potential buyer.
Knowing the strengths, weaknesses, opportunities and threats of the potential buyer.
However, how can we answer these questions? We recommend you to apply the following tools:
SWOT Analysis, it will help you understand the strengths, weaknesses, opportunities and threats of the sector, your company and the company of the buyer.
Porter Five Forces, will help you know if the sector of your company seems attractive for a certain type of buyer.
Boston Boxes, they are useful to analyze the business portfolio equilibrium of a buyer and identify why your company could add something valuable to a specific buyer.
Nonetheless, this step does not end here. It is extremely important to know how to use the different methods that will make you able to identify the perfect offer and negotiate a benefitial transaction for both parts.
The next thing we will do is understand one of the most delicate concepts inside a corporate operation: the due diligence.
The due diligence
One of the main points during the selling process of a company is the due diligence. During this phase, the level of transparency and precission from the seller should be extremely high, as it is here where the buyer will be able to see in depth and full detail the company he is about to acquire.
In other words, the due diligence is an analysis of everything that is under the tip of the iceberg of the company to be acquired. Due to its level of delicacy, we recommend you to manage it with extreme caution, and if possible with the support of a professional advisor.
You would think that after the test of the due diligence the process would be over, but there is still left one of the key parts of the process: the sale and purchase agreement (SPA).
The sale and purchase agreement (SPA)
Once the buyer determines the real value of the company that will be acquired and the due diligence is finished, it is time to decide the selling price and prepare the sale and purchase agreement (SPA) of the company. This requires of a lot of care and meticulousness.
One simple paragraph can make a successful operation become a failed one. With this in mind, the SPA is not something to take lightly due to its complexity. The most frequent question is: what is the content of the agreement?
Generally the agreement is made up of 5 sections:
Description of the transaction
Terms of the agreement
Representations and guarantees
Conditions of the agreement
Each of these sections have a high level of importance and they should be perfectly executed to assure a successful operation. We invite you to know more about them in the following article.
How to sell a business: a real life example
Knowing how to sell a business can be complicated, that is why we want to clear all the doubts you may have regarding the selling process of a business so you can focus on taking the best decision for your future and the one of your company. We wanted to take the opportunity to tell you with full details the acquirement of SumaCRM by Efficy. You might be wondering what is unique about this operation, and the truth is the story behind it is really special, as from the blog of SumaCRM they retransmited weekly the whole selling process with real data and full detail.
To download the Case Study please fill out the following form:
We are calling September the second resolution of the year. It is a special month in which you have a fresh start after the summer break. Fresh starts allow you to rethink which route you would like to take for the upcoming year. And an important question to have in mind might be when to sell your business.
A common September resolution for some businessmen is to sell their business as well as to buy other businesses. That being said, why not reflect on this for a moment?
Are you in the position to face the next round of new competitors and challenges? Do you feel prepared to adapt to the changes of your industry?
Or do you think that it is time to rest and enjoy the rewards of all your hard work?
There is no right or wrong answer, so let’s take a look at some important factors you have to take into account before deciding if you are ready to keep on going or if you want to throw in the towel.
If you are thinking you are ready for another round, take into account the needto incorporation new resources: if one finds themselves seeking an increase of capital to continue to be competitive, it is possible that the businessman is not willing to re-invest in the assets that they have already generated and extracted from the business.
There is no need to worry if this is the case since September is the month in which many individuals suchs as yourself want to sell and a lot of buyers are ready to make the move.
But the uphill is just beginning. This months’ wave encourages and inspires the appearance of new economic players with greater competitive capacities that will threaten the future of your business. These players tend to be from different geographic markets or products. If you don’t see yourself ready or wanting to fight new and powerful competition, then it will be wiser to make a smart choice and sell your business.
Seller and buyers are not the only ones rethinking their future, employees and teammates are too, therefore the loss of human capital becomes a risk. If one is having trouble hiring, working together or keeping a team that is running the business, these are signs that it is time to sell your business. At this point, the owner does not have the will nor the strength to make the business grow at a rate that is of interest to other external directors.
September is the “icing on the cake”, because it is not just about one month, it is about the whole moment we are living now. Theoretically, for the next 30 days you are in a golden period to make a decision about selling your business.
Also, money in the hands of venture capital is at record highs, central bank balance sheets are inflated and the liquidity of listed companies is causing a wave of sectoral consolidation. You know your sector. If the wave has started, it will change its competitive structure and the margins will suffer. The last ones that remain without participating in the consoloditation will not be able to survive.
LET’S DO THIS HAND BY HAND
We understand the implications and hard work you have invested these past years of your life into your company, and we understand that the challenges become bigger every year. Therefore we want to ensure that all your effort doesn’t stop where you stop.
That’s why ONEtoONE will help you to find the best buyer and solution to your situation. We aim and work hard to secure a trusted buyer and process; one with which you find yourself comfortable and happy, and that will let you focus on your new life plans without worry.
Don’t hesitate to contact us if you want more information about how to take on this important step in every businessman´s journey.
Selling a business requires a very carefully thought out process that must be extremely well organized, and as such, this process contains a vital three-phase sequence: the preparation of the company’s documentation, the marketing of the company and ultimately, the negotiation with the buyers.
The process will usually last between 9 and 12 months, although there are frequent examples of when complications are experienced and this timeframe can expand significantly. With this in mind, there have been operations that have lasted several years, however if the process is genuinely respected and well organised, then one can go about ensuring that the timeframe will not go beyond the 9 to 12 length.
1. The Preparation of the Documentation for selling a business
In the process of preparation, there must be the creation of three significant documents:
1. A sales notebook, otherwise considered a memorandum of information, in which it presents the competitive advantages of the company, its capital structure, as well as the relevant financial projections and figures.
2. The company valuation. This document will outline the company’s value drivers, as well as additional elements that will assist negotiations in the final phase of the process.
3. An extended blind teaser of the company is also necessary in order to address and inform potential buyers about the general concepts of the company. This document, as is hinted in the name, ensures the anonymity of the company being sold until the potential buyers sign a confidentiality document called a non-disclosure agreement.
2. The marketing of the company
For this phase of the process, one must first create a mapping document of all possible worldwide buyers. As such, it is very common that the best buyer for your company is not the one that you have in mind. With this in mind, you have to consider that the buyer might not always be located domestically, or be a direct competitor of yours; taking this a step further, the buyer might not even come from the affiliated sector of your company.
For example, we once had a case of a logistics company in the pharmaceutical sector, which we did not sell to a fellow pharmaceutical company. Rather, we sold it to a company that focused on hospitals. We were able to do so because we had analyzed the corporate operations that had recently taken place in the world, and in turn, we found that there had been an instance where a transaction between a hospital and a logistics company for pharmacies had occured. This information gave us a valuable insight into the trends and thought processes that were taking place in other international markets. As a result, as we have suggested is possible, the buyer ended up being a company from a different sector.
Once the best potential buyers are found, it is time to contact the CEOs or top management of the selected company. These companise have been selected largely because they have been perceived to be the best fit for your company, and the ones that will be able to offer the highest price.
This process, which is often conducted by professional advisors, is one that can be considered to be long and laborious. However, in taking this additional time, it can be ensured that the buyer and seller are transparent with each other, share the information necessary, along with their updated perceptions and feelings toward the potential operation.
The negotiation with the buyers
Once you receive your indicative offers, this is when you begin the process of negotiation with respect to what has been offered, and how you wish to potentially adapt them. It is important to not only try find the company’s that is going to pay you the highest price, but also focus on who will be the best managerial fit for your company, as well as who will present the optimal payment method according to your needs.
As such, there are many differing elements that come together during a negotiation. Once there is an agreement with your selected buyer, this is when the official letter of intent is signed. At this point in time, the strength and significance of the negotiations get taken to a new level, as there is now a mindset that an agreement regarding a deal will arrive.
After this letter of intent, there is the necessary process of due diligence; a sometimes tedious but extremely important process that everyone should conduct before buying a company. This process sees the holistic analysis of the target company’s legal, fiscal, labor, legal, environmental and financial situation. As such, a complete analysis of the company is necessary because once acquired, any contingencies that this company may have will become the responsibility and problem of the buyer and therefore, the acquirer should try to prevent or adequately prepare for them as best as possible.
After finalising the due diligence, this leads to another negotiation process. This particular negotiation covers the likes of how to deal with contingencies, ascertaining various guarantees and finally, the revered sale and purchase agreement. However, there one cannot take the sale and purchase agreement for granted. As such, it is a process that can last up to a year and is extremely technical. Therefore, it is essential that you use experienced advisors for this phase, ones that have gone through the process many times and know exactly how to anticipate problems that are likely to arise.
Remember that the buyer will also be accompanied by very experienced advisors. As a result, especially if you are a first time seller, you should not face these experienced advisors and buyers without an experienced team that you can have absolute confidence in. With these trusty advisors on your team, you will be assured that interests will be defended and that you will be guided effectively through the process.
As is detailed, the process of selling a process is a long and extensive one. In trying to complete it alone, you risk becoming lost in the process or simply losing the motivation to get through it all. Unless you truly feel that you know how to maximise the price of your company, it is recommended that you seek out professional advisors with experience in this process. If you feel that you fall into this bracket, do not hesitate to get in touch with our team of trusty advisors.
To retire off the back of selling one’s company remains one of the quintessential dreams of any entrepreneur, but such an outcome does not simply arise from having a successful business. Some owners delay the process of succession until it’s too late. So, when is the right time to retire? In this article we will analyze the best retirement options for business owners, focusing on selling the company.
Many businessmen who founded their company in the 80’s find themselves stuck due to their heirs not wanting to continue on with the business, either because of their varying interests or because of family conflicts that need to be avoided. Other times, it’s the owner’s son or wife that has a conflict with company partners or the directive team and in turn, the businessman anticipates a conflict once he is due to pass the business on.
When is the right time to consider your retirement options?
Like everything in life, preparation hold’s 99% of the key to success. If the business owner observes that his family members are unfit to continue the business, the owner must be proactive in the search for a buyer.
It is a big mistake to wait for a buyer to appear. It is unlikely to happen, and when it does , it is rare that they are the best fit. More often than not, it is likely that they will bargain an undervalued price in an aggressive negotiation, all under the premise that you do not have any other alternative.
The risk that an owner takes is that as time passes, the will to continue the business wears off, and this in turn transitions into the rest of the team. This means that the business will begin to deteriorate, as the leader is becoming less interested in the project, whilst emitting less energy and enthusiasm for the company. The employees are the ones that suffer the consequences.
Why you need a plan
Just like athletes, businessmen need to know and admit to themselves when it’s time to retire. The difference here is that unlike an athlete, a business owner must have a long-term retirement and succession plan in mind, potentially several years before it is time to retire. Selling a business is a professional process that takes time, and there is nothing more important in a business’ professional’s life than that of their company’s sale.
As Saint Paul says in his letter to Timothy: “I have fought the good fight, I have finished the race, I have kept the faith.” It is crucial that a business owner prepares his retirement in such a way that he can finish selling his business in a strong condition. He will have the satisfaction that his mission was accomplished and to have placed the cherry on top off a process that creates value and ends in a magnificent operation.
Finding not just any buyer, but rather the buyer that will create the most value for your company; one that gives off the best image, adequately manages communication, classifies business by what will bring the most value and enjoys good alternatives with other possible buyers. It is crucial so that the operation has widespread and ongoing success.If you are ready to retire and need to sell your business, don’t hesitate to contact us!
Sectors are in constant dynamism such as new technologies (3D printing or big data), new forms of logistics and changes in the habits of consumers. These are a few examples of disruptions that cause the need to look ahead for the sale of one’s business.
A businessman must be aware of his environment, its causes and effects in respect to its business’s framework, to not be hindered. One must be ready to reinvent themselves if possible, or be ready to sell in case of an unfavorable outcome. Listed will be warning signs of when it is time to sell.
1.Concentration in the sector: mergers and acquisitions represent, in most cases, the least costly route to modify, globally, the structure of a sector. There will be a concentration of providers and competitors and your business will be left without any scale and your leeway will continue to be minimized.
2.The appearance of new economic players with greater competitive capacities that will threaten the future of your business. These players tend to be from different geographic markets or products. In these cases, selling the company while it continues to be relevant could be a wiser choice than waiting until your competitor takes over your clients and the market.
3.Declining profit, due to having little to no products that were developed or distinct. Having a scarce amount of development is a clear reason to reflect upon a sale. The business is suffering a progressive deterioration of its balance. Many times instead of creating profit one is diminishing it.
4.Growth, in some cases is precisely the problem. When a company takes on a larger size that was not foreseen, it creates a conflict with management because the company was not prepared for it. It is prefered to sell off to a larger business or one with greater management capacities.
5. The need to internationalize or relocate the business (so it can be competitive), puts the owner in a tough situation, causes the owner to sell the business before the decline becomes greater. The businessman sees how relevant competitors are relocating to different countries and he cannot do it himself.
6. The loss of human capital: if one is having trouble hiring, working together or keeping a team that is running the business, these are signs that it is time to sell your business. At this point, the owner does not have the will or strength to try and make the business grow at a rate that is of interest of other external directors.
7. The loss of important clients: this can be a sign that one is losing competitive strength or that the company is in need of new ideas or new strategies.
8. Clients are doing vertical integration: they are buying from our competitors and they stop buying from your business.
9. The need for the incorporation of new resources: if one finds themselves seeking an amplification of capital to continue to be competitive. It is possible that the businessman, especially if they are near the end of their career, is not willing to re-invest in the assets that they have already generated and extracted from the business and prefers to let go as a whole.
10. Detach from unprofitable divisions, to the ones that can no longer receive more resources, that do not fit in to the company’s competitive strategy or that needs to be sold to obtain liquidity and sustain the main business.
Upon the narrowing of margens that cause companies to be liquidated with foreign companies, that are more competitive, for cost, size or investigation capacity, development or innovation, many businesses end up needing formulas to reduce costs via productive synergies with other similar companies to obtain market cuotas sufficient enough to generate economic scales.
In the last years, the change in velocity has accelerated the need to be quick to identify the right time to detach yourself from the business. The key is in acting before it is too late. Act now and make the right decision, you may need help from experienced advisors. Don’t hesitate to contact us for a strategic advisory!
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