Why Sell a Profitable Business?
Shawn Flynn
Investment Banker ?? Mergers & Acquisitions, Growth Capital ??, Secondaries I Host of The Silicon Valley Podcast?? I
I was giving a talk on the Exit Process for Selling a Business, and a question came up from the audience, “What are the most common reasons someone would want to sell a business, especially if the business is making money?”? This sparked a long conversation on doing a planned sale of a business vs selling a company due to a life event and the owner has no other options.? In this article I wanted to summarizes that conversation:
Some of the most common reasons to sell a business include:
Retirement: One of the most common reasons why a business owner may choose to sell is because they are ready to retire. After years of hard work and dedication, they may feel like it is time to step back and enjoy the fruits of their labor. (Be careful with your dreams of selling your company and then sitting on a beach the next day as many sellers is not aware of the transition period that the new buyer will want, so talk to an expert about this so you can have realistic expectations before buying any one-way tickets)
Health issues: If the owner is no longer able to run the business effectively, or a significant other has health issues and needs their attention or they have to move to a different area for treatment, they may have no other choice than to sell.
Lack of succession planning: If a business owner does not have a clear succession plan in place, no children, friend, partner they have in mind to take over, or that wants to take over, they may choose to sell the business in order to ensure its future success.
Market conditions: The state of the economy or industry can play a role in the decision to sell a business. For example, if the market is experiencing growth, the owner may be able to get a high price for the business. Conversely, if the market is in a downturn, the owner may choose to sell in order to minimize their losses.
Personal financial considerations: Personal financial considerations such as debt, the need for liquidity, or the desire to diversify investments as many worry as time goes on when all of their eggs are in one basket might not be the best thing.??
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Burnout: Running a business can be incredibly demanding and can take a toll on the owner's mental and physical health. Mental wellness is a consistent theme with owners of companies that is now starting to get more and more attention. (An article I am working on and will be release in the coming weeks will discuss this, so subscribe so you don’t miss it)?
Conflict with partners or investors: If there are conflicts with partners or investors, the owner may choose to sell the business in order to avoid further disputes. (This goes back to a past article on raising capital and beware of who you take it from and who you go into business with)
Opportunity to pursue other interests: Finally, the owner may simply choose to sell the business because they are ready to pursue other interests or start a new venture. How many owners after 5 years get bored and need a new challenge?
There were many reasons the audience and I came up with for why someone may choose to sell a business. Regardless of the reason, the decision to sell a business is an important one that requires careful consideration and planning so a takeaway is, you don’t know what the reason might be, so one should always be prepared, just in case.
If you thought this was helpful, please share and add to the conversation by writing a response.
***The content is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of professional(s) before making any decisions. ***
Shawn Flynn is a Principal at a premier middle-market investment bank with a global presence. Shawn has expertise in mergers and acquisitions, capital markets, financial restructuring, and secondaries. He speaks Mandarin and is the host of the award-winning Podcast The Silicon Valley Podcast. Connect with him on LinkedIn .
Financial Professional at Equitable Advisors
1 年I might add that if a business is inherited by a spouse or a child after the founder/owner passes, the successor might not want to run the business.
Chairman Of The Board at Starboard Strategic Inc.
1 年Many entrepreneurs are in business for the adventure of the startup, for the opportunity to learn new skills and network with new interesting people in new locals. The business of making money is exciting particularly when building a successful startup. When a business matures the thrill and the risk are replaced by day to day operating management often handled much better by experienced professional executive managers who are not entrepreneurs as such and do not have the risk profile and fire in the belly that a startup founder must have. These days many of the most scalable businesses are tech related and provide for several levels of new management skills in their growth cycles. These enterprises when successful often can be sold for 10-20X earnings which allows the founder to skip the next 10 years of working for the earnings and move on to be more productive starting yet another enterprise. This is a long deep interesting story, let’s keep it going.
Business Advisor at SBDC
1 年Great article Shawn! Great responses too. Another excellent reason to sell a profitable business is because it was the original exit plan.
Venture Investor ? Serial Entrepreneur ? Expert in Corporate Innovations & Startups
1 年Sometimes you get TIRED of doing same business for 10+ years. Just want to move on to something else.
Providing value in Outsourced Accounting & Fractional CFO services for Seed to Series A Startups | Angel Investor | Strategic Startup Advisor
1 年Great Article Shawn.?Thanks for sharing, and worth the repost!