Why Do Business Owners Sell?
While owning a business offers numerous benefits, such as financial rewards and a sense of fulfillment, there comes a time when factors like retirement, burnout, and a shift in risk tolerance prompt business owners to consider selling. In this article, we will delve into key insights shared during our recent webinar series, examining the factors that make business owners decide to sell.
Balancing Value with Other Factors
Throughout their tenure as business owners, individuals constantly balance the value they derive from their business against several factors; including the business’s income, sense of community, employee engagement, excitement, family involvement, pride, risk tolerance, and age. While these aspects make owning a business enjoyable, they also counterbalance the potential value gained from selling.
Changing Factors with Age
As business owners mature and age, their decision-making begins to change. While retirement is frequently cited, many business owners don’t view stepping away from the business as their only end goal. Currently, over 51% of business owners in the United States are 55 and older. Burnout becomes more of a reason to sell as the demanding nature of ownership can take a toll on owners’ physical and mental well-being. Health concerns and a growing sense of responsibility towards family, employees, and the community often lead business owners to question the duration of their involvement.
Risk vs. Reward
Risk tolerance also evolves over time. As business owners age, their perception of risk shifts. They may seek more security rather than having their net worth tied up in a single business. Changes in the competitive or regulatory landscape, pressure from partners, or corporate challenges can prompt owners to contemplate a transition rather than continued ownership.
The Family Paradox
For family businesses, the dynamics become more complex. Starting a business to provide for the family can paradoxically lead to a disconnect between business owners and their family members. The pursuit of growing and securing the business can unintentionally isolate the owner from the very family they intended to support. The transition or sale of the business can help resolve this paradox, remove the wedge between family relationships, and simplify estate and financial planning.
Diversification and Financial Implications
Business owners often overlook the need for diversification as their single largest asset is often their business. While financial diversification is a common concept, many owners don’t apply it to their situation. Selling a business must satisfy personal, professional, and financial goals. The sale can offer happiness, align with professional ambitions, and provide financial proceeds that meet the owner’s expectations and needs. Concentration of risk becomes less viable as business owners age and look beyond their personal time horizons.
Understanding the reasons why business owners choose to sell their businesses is essential for professionals in the transactional space. By grasping the factors that have kept owners involved and identifying the shifting balance, advisors can provide valuable insights into sale or transition options. Facilitating a well-informed decision-making process allows business owners to achieve their personal, professional, and financial goals, while paving the way for a successful transition.
Brian Goodhart is Capstone’s Director of M&A Advisory Services and the host of the multi-part webinar series, “The Verdict is In on the Sell Side.” Visit https://www.capstonestrategic.com/the-verdict/ to view past episodes.