Reasons to Sell a Business

Reasons to Sell a Business

Every day it is more frequent to see that there are business owners who cannot transmit to their descendants the company that generated the resources for many years to support their families decently. And it is that the vertiginous advance of science and technology has opened innumerable areas of labor absorption that are more attractive for the new generations of professionals and technicians than the opportunities offered by traditional industries. It is difficult to imagine a young man of the latest generation taking charge of a company founded by his father, a baby boomer that was born after World War II between 1946 and 1964. The modern business world is so dynamic that it is usual to see that the technologies used become obsolete with increasing speed. As it is, traditional business owners are likely to have to sell their companies and, surely, answer one of the first questions that potential buyers will ask you: And why do you sell?

There can be multiple reasons why a business owner wants to sell his business, but it is important that the owner always point out to the prospective buyer, so as not to confuse him, only the fundamental reason. In this sense, there are various situations that usually arise and that we will try to synthesize in this list of 8 reasons.

  1. Retirement. Retirement is the favorite reason for buyers. When a prospect sees that the seller is an elderly person who has been running his business for many years, he won't have much to ask about the reason for the sale.
  2. Health problems. When a business owner has serious health problems, it is recommended that they prepare to sell before their physical or mental capacity is reduced to the detriment of the company's productivity. This unfortunate situation can be perfectly perceived and verified by the buyer of the business.
  3. Boredom. The bored condition of a business owner is not easy to recognize, especially when the seller is going to extraordinary lengths to argue the sale. I have never witnessed a negotiation where the seller expresses his boredom for what he has been doing. For this reason, the seller will wield different reasons when answering the usual question: And why does he sell? and then we will hear the most varied responses such as “due to travel”, “change of activity”, and “devotion to raising children”, among others. In these cases, details such as carelessness in the maintenance of assets, the drop in productivity, the evident demoralization of the staff and the collapse of profitability will dictate the guideline for moving forward.
  4. Technological obsolescence. Such is the speed of technological advances applied to production and services that they have generated the "disruption" that is causing the decline of countless traditional companies. New technologies such as artificial intelligence, 3D printing and driverless vehicles, coupled with new logistics processes, have generated radical changes in consumer habits. These dynamic factors must be carefully evaluated by any buyer concerned about the dangers of competition.
  5. Conflict between partners. Conflicts that arise between partners often affect the smooth flow of operations and create discomfort among staff, customers, and vendors. This problem is accentuated when the company has few shareholders or the partners in conflict have a high concentration of capital. In these cases, the decision to sell the entire company to third parties could resolve the situation. In this circumstance, the buyer must demand a resolution from the shareholders' meeting where a natural person is authorized to bind and represent the company throughout the sale process.
  6. Financial problems. Technological changes may not affect the course of business if the management adjusts to the new methods, acquires the necessary equipment and trains its technical staff. If the time comes to change and the business lacks the financial resources to meet those short-term requirements, it will have to go into debt, bring on a partner, or sell the entire business. In the latter case, the buyer must have sufficient financial muscle to buy the company and at the same time finance the renewal of its assets and the training of the required personnel.
  7. Strategic importance. If the buyer is inserted within a business group that is interested in the business because it complements its activities, it is likely that they will produce a purchase offer at a satisfactory price, irrefutable by the owner of the company. The buyer, therefore, will be willing in this case to pay a bonus for the strategic importance that the acquisition represents.
  8. flourishing business. A business that is profitable and growing steadily represents an excellent opportunity to obtain advantages for both the buyer and the seller. In this case, the buyer will assume the administration of a healthy business with future prospects while the seller will obtain the best possible price for his company. It is common to observe that there are owners who have achieved significant levels of growth in their business but who wish to sell because they consider themselves incapable of exceeding the goals of excellence imposed by the market. They feel that it is the right time to sell their business to a business group that will take the company to a higher level. Likewise, there are situations in which the owner has never thought of selling his company because it is generating multiple satisfactions of a material and spiritual nature. If the buyer is interested in the company, he will be willing to present an offer that includes a price premium that is attractive enough to convince the owner to sell.

Conclusion. The question, why do you sell? It usually triggers an analysis process in the buyer in order to verify the real reason why it is being purchased. selling the business. If the buyer becomes comfortable with what he has heard from the seller, then he can go ahead with a detailed analysis of the privacy of the company. This process of evaluating accounting books, operating licenses, and other documents of interest is what is known in English as the period of “due diligence” or, in Spanish, of “due diligence”.   

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