There are many reasons why Business Owners decide that it’s time to cash in their chips and move on. Some of these reasons are forced upon them and result in a significant value lower than anticipated, expected or planned for. Some decisions are just bad decisions, and others result in outstanding outcomes.
First, the unfortunate reasons, which often result in low values, but which can be mitigated with appropriate planning.
- A Key Employee leaves: This loss may result in the employee taking key accounts with him/her and setting up in competition. A lack of non-compete is often evident in these circumstances
- Economic Catastrophes: The current landscape is littered with once thriving businesses that have closed the doors due to significant downturn in their market.
- Competitive Pressure: Sometimes companies fail to innovate or their technology is bypassed by new technology. Examples abound from Buggy Whip manufacturers to Blockbuster Video etc.
- Divorce, both marital and partnership break up can cause the whole structure to fall apart and disintegrate. Often the result of a poor or no Buy- Sell Agreement in place.
- The Owner Dies: Without a back up management team, and business continuity protection, this event often results in a forced sale of the business at bargain basement prices.
- The Owner burns out: This is a very frequent reason why businesses are put up for sale and it is often at a time when the business is on a downward trend…again the result is often a sale at less than full value, particularly if there is no management team in place.
- The Next Generation does not meet expectations, or they just do not like the pressure and responsibility and sell the business.
- Life changing experience: Business owners sometimes encounter life-changing experiences, such as heart attacks, cancer, or close calls in accidents. Further, the death of a parent, spouse, or friend, can trigger significant changes in the desire to own and run a business. The emotional or physical shock of such experiences sometimes fosters a strong desire to do things differently with the rest of their life. Selling the Business can be the eventual results of these life-changing experiences
Now the best reasons why Owners decide to Sell the Business:
- Appropriate Lifetime Planning: Businesses sell as result of normal lifetime planning by their owners who plan for and execute the sale of their businesses on their own timetables and terms. Management buyouts (MBOs), Employee Stock Ownership Plans (ESOPs), recapitalizations, and other techniques are often used for these transfers, in addition to outright sales.
- Gift and estate tax planning: Owners of many successful, closely held businesses engage in gift and estate tax planning as a normal means of ownership transfer. Interestingly, the absence of proper gift and estate tax planning can also precipitate the forced sale of a business if an owner’s estate lacks the liquidity to handle estate taxes, or if a failure to plan for orderly and qualified management succession cripples the business when the owner is no longer there.
- Unexpected offers: Occasionally, business owners receive unexpected offers to purchase their businesses. When this occurs for a particular owner, he sometimes will sell to the surprise bidder or else decide then to sell the business to the highest bidder.
- The Time is Right and the value is at its highest: Not the most frequent reason, but after all the Business is an “Investment” and it is much better to sell the bsuiness at the top than a forced sale at the bottom. In this situation, the business is in great condition, profits are high and growing and the market is “Hot”.
In all of these circumstances, proper planning and positioning, or the lack thereof will make a significant difference to the final outcome.
