Why is the Business Owner Selling?
When looking to acquire a business, oftentimes one of the first questions to be asked of the seller is, “Why are you selling?” The answer you receive is important as it will guide you in your due diligence.
There are multiple reasons why someone sells their business and transitions into another opportunity or lifestyle. Some reasons are understandable and should not hinder your acquisition while other reasons may set off alarm bells.
Here are both common and concerning reasons owners sell:
Common Reasons Business Owners Sell
Per the International Business Brokers Association and M&A Source surveys, this is currently the #1 reason business owners sell. It makes sense, since Boomers are retiring at a record pace and by 2030 the youngest Boomers will be 65 years old. Buyers like to hear retirement as the reason for selling as it normally doesn’t create any concerns.
The owner may have multiple businesses and decides it makes sense to sell one and focus on the others. Or, maybe their spouse has a business toward which they want to dedicate more time and energy. This explanation also seems reasonable.
No Generational Succession
There are business owners who began their business journey envisioning the kids taking over some day. It is not uncommon that the children aren’t interested in owning their parent’s business. They’ve often seen the time and dedication it takes and don’t want the risk or commitment. This usually is an understandable reason.
This reason often is combined with exploring new opportunities. If the owner has had the business for a good length of time, it certainly makes sense that they want to move on. Selling is probably the best thing that could happen in this case. It brings in a fresh attitude that rejuvenates the employees and jumpstarts sales.
Concerning Reasons Business Owners Sell
The Dangerous “D’s”
Death, divorce, disability, declining revenues and departure create concern for buyers; these reasons can all come with turbulence. Depending on how these situations affected the owner and the business, buyers need to make sure they are comfortable with the current state of the company. For example, if the reason is departure, the buyer should find out how much the business will be affected financially by whoever has departed (key employee, key customer, etc.). This could be a deal breaker.
License or Patent Issues
If there are issues here, I would hope the owner would have shared this up front and had a good action plan to correct the problem prior to closing. If during due diligence the buyer discovers license or patent problems without any preliminary discussion with the seller, this more than likely will be a deal breaker.
Negative Future Industry Trend
Some business owners will look to the extended future and realize their product or service may not be as popular in 5-10 years and they want to sell now. As a buyer, you’ll need to do your homework to make sure the business you are buying and the industry it’s in has a viable future.
It usually is a combination of reasons a business owner decides to sell. The most noticeable combination I’m seeing today is many owners have reached retirement age and are burnt out from overcoming the current challenges of COVID, labor shortages, supply chain problems and inflation. These are common and understandable reasons that should actually provide a mountain of opportunity for buyers.
If you are thinking about selling your business, I would recommend reading the following articles: “Don’t try to time the sale of your business”, “Are you ready to sell your business?” and “What is the downside of holding onto my business too long”.
This article was written by Sam Thompson, CBI, M&AMI. Sam is the president and founder of Transitions In Business, a Twin Cities based M&A firm that specializes in selling business to business and healthcare, transportation, manufacturing, distribution and construction/trade services companies. Sam is a Merger and Acquisition Master Intermediary (M&AMI) and a Certified Business Intermediary (CBI) who has successfully guided countless business owners through the sale or merger of their company. Prior to becoming a business broker, Sam was a successful CEO and business owner for 29 years before selling his $16 million conference and event management company. If you have questions about this article and would like to connect with Sam click on the link below.