Guide to selling a business Part 1: Why are you selling up?

In the first of a three-part series in association with BusinessesForSale.com, we explore the reasons people sell their company and when it is right to let go.

Buying and selling a business

When is the right time to sell a business?

People sell businesses for a wide range of reasons. Sometimes several motivations converge.

Those reasons all fall into one of two camps: factors related to the entrepreneur’s personal circumstances or those related to the business’s fortunes or development and the health of the wider economy.

BusinessesForSale.com asked hundreds of business sellers around the world what their motivations for selling were and these were the most common responses:

  • Retirement (34 per cent)
  • Seeking a new challenge (24 per cent)
  • Relocating to a different area/country (22 per cent)
  • Don’t have enough time to dedicate to the business (12 per cent)
  • Always planned to sell after this many years (12 per cent)
  • Illness (10 per cent)
  • Divorce (2 per cent).

As for commercial reasons, these factors topped the rankings:

  • Always planned to sell once the business had reached this stage of development (9 per cent)
  • Challenging trading conditions (3 per cent)
  • Increasingly difficult to thrive in this sector (3 per cent)
  • Disagreements with business partner (3 per cent)
  • Bought the business but now regret it (2 per cent)
  • Don’t think I’ll ever get a better price for the business (2 per cent).

Note how personal reasons far outstrip non-personal factors in terms of percentages. It’s only natural that people want to sell when it suits them.

Growth phase

In an ideal world, an entrepreneur’s desire to move on will emerge when the business is climbing a growth curve. More specifically, Rob Goddard, CEO of Reading-based business-transfer agents Evolution CBS, thinks that it’s better to time a sale so that the business is in a growth phase but not at its peak.

‘A typical business growth curve is a repeat of growth-plateau-investment-growth. Businesses grow in the early stages, then plateau and need investment to get to the next level.

‘So, if you look at this scenario from an acquirer’s perspective, the business is unlikely to warrant a premium price. Equally, if the business is at the top of the growth curve, an acquirer is also unlikely to pay a premium price because investment for growth will be required immediately. In many ways this should be the starting point for the timing decision.’

Putting a plan in place

The moment you think you may want to sell up in six, 12 or even 18 months’ time, it’s worth putting a plan in place as to how you prepare your business over that time period.

Start with your personal objectives – for example, ‘I want to retire by the age of 60’ and ‘I need a sale price of £150,000 to afford that house in the Cotswolds’ – and then work backwards.

How much is the business worth now? Get an independent business valuation.

What steps must you take to boost the valuation to that magic figure, within your target time frame? A business-transfer agent can help you with this.

Create a plan with milestones and steps you must take to hit them, whether that’s upgrading systems, removing unprofitable product lines, expanding production capacity, or whatever it might be.

And don’t panic if the timetable slips. Periodically review and amend the plan in light of unexpected events.

Sometimes, however, you need to exit a business in decline – perhaps because of falling demand or a business model upended by new technology (think DVD rental shops in the late 1990s).

Finally, and though this is rare, you may get an unsolicited offer that is too good to turn down. However much you enjoy running your business, everything has its price, and you may end up selling up several years earlier than you expected.

Further reading on selling a business

Nominations are now open for the British Small Business Awards 2017, the leading event celebrating the brightest stars in the SME sector. Click here to enter, and make sure you get involved today using the hashtag #BSBAwards. Good luck!

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