Many potential business buyers are skeptical when looking to purchase a company, and they should be. Most people know “caveat emptor” means “let the buyer beware” and is often the legal default position before buying good and services. This means that it is up to the buyer to perform their due diligence when buying a product or service or a business.
Potential buyers often say to me, “If this business is so good why does the owner want to sell? There must be something wrong with this business.”
After 15 years in the business brokerage business, it has been my experience that although some business are selling because the business is in trouble, this is most often not the case. While it is good to be skeptical, it should not deter someone that want to own their own business from buying a good solid business.
Business owners make decisions to sell their companies for a variety of reasons. More often than not the reasons smaller business sell are for what I would call “life reasons” rather than “business reasons.”
The number one reason that most sellers tell us they want to sell is that they are tired of the business. This can also be called business burnout. This can seem incomprehensible to most potential buyers; however we see it happen all the time. A business owner typically eats, sleeps, and breathers their business, and over time this takes a toll. If a business owner has owned a business for 15 years that has been their job for those entire 15 years. Sometimes it is time for a change.
Many of the same buyers that look skeptically at a seller that wants to sell because they are tired of the business have had five different jobs over the same period of time, and some as many different careers. When you think about it in those terms it really is not so hard to understand why being tired of the business is the number one reason owners want to sell.
Retirement is always an issue. Every owner will need to have an exit plan. If there is no plan to transfer the business to family or perhaps an employee or group of employees, a viable option can be the outright sale to a third party. An owner in this situation typically understands the business well and will be able to provide guidance and training to the new owner.
The retiring owner may even stay on as an employee in a diminished role.
Years ago, we sold a florist shop. The woman that owned the shop loved working in the business but didn’t want the burden of owning the store anymore and wanted to semi-retire. We sold the shop to a third party and the previous owner now works in it three days a week.
Health issues can be a real motivator. Sometimes an owner will be forced to sell because the business is affecting their health. When an owner realizes that his or her health is being adversely affected by the business they can be very motivated to exit as quickly as possible.
Family issues are another big reason owners are interested in selling. I have a client, a husband and wife in their late 40s. They started their business in their back yard and have grown the company to over $12 million in annual sales. When pressed by me why they were interested in selling at such a young age they responded: “We have two small children and we hardly get to spend any time with them” and “we have plenty of money but the business consumes us” and “we want to see our children before they are grown and out of the house forever.”
Relocation can be another issue. I have another client with a nice business that wanted to relocate to the mountains of North Carolina. He recognizes he cannot continue to operate the business from there and wants to sell.
Divorce can take a toll on a business. Often in a small business the husband and wife are mutually involved in the day-to-day operation of the business. When there is a rift it makes it almost impossible for either party to continue in the business and the business must be sold. The same can be true for partnerships. If a partnership deteriorates more often than not the simplest thing to do is sell the company and split up the proceeds accordingly.
Sometimes the health of a spouse, an aging parent or special needs child will necessitate a sale. I recently sold a very profitable manufacturing company. The single driver of this sale was the poor health and special needs of the business owner’s daughter whose condition took up a significant amount of the owner’s time. The owner of this company realized he would not be able to attend to their daughter’s needs and those of the business as well.
As you can see often the real motivation for a sale are people reasons and not business reasons. If a buyer looks for the real reasons a business is for sale they can determine if the business is a good fit.
David Yezbak is the owner of Sunbelt Business Brokers in Augusta and Columbia, S.C.