by Alfredo Gonzalez | Jan 18,
Every day it is more frequent to see that there are business owners who can not transmit to their descendants the company that generated for many years the resources to decently support their families. And is that the breakthrough of science and technology has opened countless areas of labor absorption that are more attractive to new generations of professionals and technicians than the opportunities offered by traditional industries.
It is difficult to imagine a young man of the last generation being put at the head of a company founded by his father, a “baby-boomer” that was born after the Second World War between 1946 and 1964.
The modern business world is so dynamic that it is usual to see that the technologies become obsolete with astonishing increasing speed. Thus, it is likely that traditional business owners have to sell their businesses and, surely, being questioned by potential buyers with the frequent question: Why are you selling?
There may be many reasons why the business owners want to sell their companies, but it is of capital importance for the owner to point out sharply and unequivocally the main reason for his decision. In this sense, there are several situations that are usually presented and that we will try to synthesize in this list of 8 reasons.
Retirement. Retirement is the favorite motif for the buyers of a business. When a prospect observes that a seller is an elderly person who has been managing his company for many years, he will not have much to ask about the reason for the sale.
Health problems. When a business owner has serious health problems it is advisable that he prepares to sell before his physical or mental capacity diminishes to the detriment of the productivity of the company. This unfortunate situation can be perfectly perceived and verified by the buyer of the business.
Boredom. The boredom condition of a business owner is not easy to recognize, especially when the seller is making extraordinary efforts to argue the sale. In fact, I have never witnessed a negotiation where the seller manifests his boredom for what he has been doing for a good part of his life.
Therefore, the seller will use different reasons when answering the question of rigor: And why do you sell? and then we will hear the most varied responses such as “for reasons of travel”, “change of activity”, and “devotion to the upbringing of children”, among others.
In these cases, details such as carelessness in the maintenance of assets, the fall in productivity, the evident demoralization of personnel and the collapse of profitability will dictate the pattern for the buyer to move forward.
Technological obsolescence. The speed of the technological advances applied to production and services have generated the “disruption” that is causing the decline of a huge number of traditional companies.
New technologies such as artificial intelligence, 3D printing, and self-driven vehicles, coupled with new logistics processes have generated radical changes in consumer habits.
These dynamic factors must be carefully evaluated by any savvy business-buyer concerned about the dangers of competition.
A conflict between the partners. The conflicts that arise between the partners generally affect the quality of operations and create discomfort among workers, customers, and suppliers.
This problem gets deepened when the company has few shareholders or the conflicted partners have a high concentration of the firm’s capital.
In these cases, the decision to sell the entire company to third parties could be the most appropriate way to resolve the situation.
Under this circumstance, the buyer must demand a shareholder’s resolution where a natural person is authorized to oblige and represent the company throughout the sale process.
Financial problems. Technological changes may not affect the course of business if management adapts their company to new methods, acquires the necessary equipment and trains its technical cadres.
If the times to change have come up and the company lacks the financial resources to cope with the short-term requirements, the firm will have to either borrow, incorporate a partner, or sell the entire business.
In this last case, the buyer must have enough financial muscle to buy the company and at the same time finance the renewal of their assets and the training of the required personnel to stay afloat.
Strategic importance. If the buyer belongs to an entrepreneurial group looking for complementary businesses, it is likely that will present the seller a purchase offer flavored with a satisfactory price, unchallenged by the owner of the company. The buyer, therefore, will be willing in this case to pay a bonus for the strategic importance of the acquisition.
Booming Business. A business that is profitable and grows steadily represents an excellent opportunity to obtain advantages for both the buyer and the seller. In this case, the buyer will assume the management of a healthy business with a shiny future while the seller will get the best possible price for his company.
In some cases, business owners sell because they feel that they lack the managerial ability to make the firm grow further. It will be the moment to pass the torch to a business group that will take the company to a higher level.
There are also situations in which the owner has never thought about selling his/her company because the firm is performing quite well. If the buyer is interested in this company he/she should be willing to submit an attractive-enough offer, carrying a premium on the price.
Conclusion. The question “Why are you selling?” usually triggers a process of analysis in the buyer. It is such an important starting-point-moment that the seller should be prepared to give a precise, unhesitant and immediate answer if he/she wants to generate trust in the buyer.
Be very careful when expressing the cause of the sale because for the buyer it will be very easy to find
In this sense, if the buyer feels comfortable with what has heard from the seller, then he will go ahead with the due diligence process, consisting of evaluating the accounting books, operating licenses, and other documents of interest related to the company.
Be very careful when expressing the reason of the sale because for the buyer it will be very easy to find the true cause.
