8 Signs It’s Time to Sell Your Company
We often chat with business owners who are struggling with the decision of selling their business. It’s a very difficult and emotional decision to make so owners spend a great deal of time thinking it through - but very often don’t commit to any one particular strategy, leaving the timing the business sale, or owners exit, to all sorts of external forces. We see people who sell for all different kinds of reasons, but some tend to appear again and again. Common reasons we see include:
Health Problems
No one likes to admit it, but we’re all going to shuffle off this mortal coil at some point. This is never a good one to see, but it’s fairly common. As people get older, health problems pop up. Health problems often result in a forced exit when a business is really dependent on the owner for its success.
The Shiny New Thing
Some serial type entrepreneurs love the thrill of entering new markets, working with a small team and finding a sustainable business model. As the business grows, it requires more systems, processes and procedures to enable it to scale which makes the entrepreneur throw up in the mouth just a little. Bored with the repetition and bureaucracy, the founder starts getting distracted with all types of ‘special projects’. If they’re lucky, they realise where their passion lays and sell. Those that aren’t able to identify this usually destroy huge amounts of business value chasing the next shiny thing instead of nailing and scaling what they’ve already built.
Lost The Passion
Groundhog Day strikes again. As business owners get older, the passion for the day to day management often fades. We see this a lot as well, the owner’s heart just isn’t in it anymore - the staff know it, customers sense it, family has been hinting at it and the owner herself is the last to admit it. This can result in several outcomes including an absentee owner, planning for retirement, or just looking forward to doing something different after leading the business for 20+ years.
No Succession Plan
About 70% of Australian businesses are family owned, employing 50% of the domestic workforce and carry around $3.4 trillion in enterprise value. Statistics from Family Business Australia show that less than 30 per cent of all family-owned businesses survive into the second generation; 12 per cent will still be viable in the third generation. Shirtsleeves to shirtsleeves in three generations. Too few family businesses have a clearly understood succession or transition plan. You’ve put your blood, sweat and tears into the your business for most of your life, why not ensure that its legacy is able to continue when you can’t?
Holding it Back
Most of us don’t start our business with a clear business plan. We stumble along in the dark and when customers pay us money we try and do more of whatever led them to pay us in the first place. The next time we stick our heads up we’ve built a $10m sales business with 40 staff and keep being invited to speak at business breakfasts to discuss our ‘secrets of success’. No one likes to admit they have no idea how they got here. The skills you need to start a business and get it to $10 million in sales are not necessarily the same skills you need to get it to $50 million. Some owners realize they don’t have the necessary skills to get the company to the next level and look to sell. Some owners build a leadership team, develop their own skills and grow with the business. Most never realise (or admit) the problem and hold the business back.
The Boss Calls Time
Missed birthday parties, cancelled holidays, broken promises. Unfortunately our obsession with our businesses has a big toll on families and especially our spouse. We promised that one day we would make more time for our family and our husband or wife has dropped plenty of hints. Either we make time now or we no longer have a spouse.
The Partnership Blows Up
Two partners start a business and never thought about the future. Both have significant ownership and one is now ready to retire. When the owner who is retiring wants to sell his shares that means the business needs to be valued. After the business is valued the business is more likely to be sold, but who is going to buy?
Diversifying Your Asset Base
Business owners consistently reinvest in their business. We see most SME business owners have >75% of their personal wealth tied up in their business. When their SMSF owns the building the business operates in, the value concentration is often above 90%! Any financial advisor worth their salt will tell you it is never good to have all your net worth tied up in one asset.
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More often then not, the reason for selling the business doesn’t fit nicely into one of the reasons we’ve described above. Usually, it’s a combination.
If you’re a business owner facing one of the challenges above, please let us know. We would love to chat with you.