Retirement is the number one reason business owners sell their business. That probably comes as no surprise. And yet, only about half of business owners who sell are planning to retire. Roughly 40 to 50% of business owners sell for some other reason, like family issues, an unsolicited offer, or burnout.
For over a decade, the IBBA and M&A Source Market Pulse Report has been tracking the triggers that drive sellers to market. What this survey shows is that after retirement, these are the leading reasons business owners sell:
Burnout: The long hours and constant demands of running a business can take their toll, leading some owners to lose interest or energy. This is the second most common reason business owners sell.
Unfortunately, when you sell at the point of burnout, your business may have already declined in value. When owners get burned out, they start to neglect key tasks or overlook opportunities. Worse yet, owner burnout can infect employee engagement or even customer loyalty.
The best time to sell your business is when you’re on a growth trajectory. Buyers pay a premium for businesses with upward financials and a strong growth story. It can be hard to sell when you’re engaged and excited about what the business can do next, but that’s also when buyers are prepared to pay the most.
New opportunity: Sometimes business owners want to shift gears and pursue a new venture. If you have a novel business idea you’re excited about, selling your current company can give you the funds and time to bring a new concept to life. Other business owners sell because they realize ownership wasn’t a good fit, or they’ve received an attractive job offer.
According to the Market Pulse Report, selling for a “new opportunity” is more common among Main Street business owners (i.e., businesses less than $2 million in enterprise value) than those in the lower middle market. Some smaller business owners have less emotional attachment or a lower financial investment, making it easier for them to unwind and exit.
Unsolicited offer: If you run a successful business, you may receive unsolicited offers from buyers interested in acquiring your company. Financial buyers and competitors may come knocking if they see synergies or opportunity for growth.
Sometimes an offer is just too good to refuse. But no matter what’s on the table, it’s a good idea to seek professional representation as many unsolicited offers are low-ball offers. An M&A advisor can estimate what your business is worth before you consider your options. They can help you evaluate an offer from an objective standpoint while working to protect your best interests.
Family issues: Chalk this up to stuff happens. Life changes like divorces, illness, death, or family conflict can prompt an owner to sell. Other owners want to carve out more family time as their children grow older. This category accounts for 5% to 10% of business sales.
Unfortunately, many of these family issues are what we refer to as the “Dismal D’s” (divorce, death, disability, or disagreement). No one likes to think about all the what-if scenarios in life. But there are proactive steps you can take to prepare a business to weather these kinds of exits.
With appropriate life insurance, for example, a surviving business partner can afford to buy out a deceased partner’s heirs. In the event of divorce or business partner conflict, recapitalization strategies can help one partner keep the business while compensating the departing party. Finally, getting a regular estimate of value on the business can help ensure everyone is on the same page about what the business is worth—before any these Dismal D’s occur.
Even if you don’t know why, you can still plan
At the end of the day, there are countless reasons business owners sell. Maybe their family is relocating, they’re ready to take some chips off the table, or they just think the business itself would benefit from a new owner with different skills and energy.
Even if you don’t know when or why you’ll exit your business, there are still things you can do to plan. Read books or talk to an advisor and find out what it takes to get the best value for your business. Learn about the different types of buyers, exit options, and tax strategies available.
Above all, keep tabs on what your business is worth. It’s valuable information that will not only help you protect your business, but it can help you make an informed decision about when and how you’ll say goodbye.
