Business Broker Blog

Decision - To Sell or Not to Sell

  

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In the last article titled “Value the Company “, we discussed the  fundamentals of business valuation and examined one methodology for arriving at a ballpark value for your business.

Now that you have that ballpark value, you need to decide whether or not you should go forward with the sales process.

 In this article we’re going to discuss several factors that one must consider before selling the company.

Before we do anything else, let’s look at some reasons that people sell their business:

• Retirement – more people are reaching retirement age than at any point in US history and many of them are business owners.

• Burn out – this is a perfectly valid reason to sell. Many people suffer burn out doing the same thing, in the same business, dealing with the same customers that they need to do something else.

• Dreadful Ds – Death, disability, divorce. These unfortunate events can happen at any time and that’s why you should always have your business prepared to sell.

• Diversify Assets – In many cases the business owner has most of their wealth tied up in the business. Selling the business allows them to diversify their assets.

• Other Interests – Some business owners have other businesses that they would rather focus their time and energy on. And some would rather sell their current business and pursue other interests – in the business world or otherwise.

Now let’s take a look at the reasons that companies don’t sell:

• Selling Price too High – this is the NO. 1 reason that businesses don’t sell. If your selling price is 20% or more than the value that your adjusted cash flow and risk assessment suggested then it’s probably not a good idea to put your business on the market. If your company’s out there and it doesn’t sell, you’re wasting a  lot of time and effort and it will leak out eventually that you’re trying to sell.

• If you absolutely need the inflated selling price then you should work to get your cash flow and risk assessment into line with that price expectation.

• Of course, you need to determine if you can achieve that value increase.
• What are the obstacles? If you’re nearing retirement age, do you have the energy? If you don’t have the energy, or the demand for your product or service is decreasing, then you’re better off lowering the price and selling.

Let’s look at some other reasons that businesses don’t sell:

• Financial statements are not accessible or unclear. We addressed this in the 1st article – Analyze the Company. You should have a software program to generate financial statements and your accountant should provide you with financial statements at least yearly. If you have other businesses, always keep your financials separate for each business.

• You are the Business – Any business is difficult to sell if the business owner is so important that the business can’t function without him or her. The ideal situation is when the owner is not important to the functioning of the business.

Now that we’ve discussed the different reasons business owners sell their businesses and also the major reasons that businesses don’t sell, let’s examine your financial needs.

If you’re burned out in this particular industry, or you want to pursue other interests, and assuming you’re not of retirement age, do you have a plan for your next career?

Do you have a post sale plan?

In a previous article you learned how to arrive at a ballpark value for your business. Would that selling price meet your financial needs?

Are your documents in order? These include your financial statements, contracts, agreements, etc.

Do you have trained employees that can run the business in your stead? Will they stay on after the transfer?

These are some of the things that you must consider. Of course, there are others depending on your particular situation.

To view the video of this article click Decision to Sell.