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In nearly every transaction we broker, sellers hear one question from buyers more often than any other – why are they selling their business? Buyers want to know what they’re getting themselves into. If the seller doesn’t want the business, then maybe the buyer doesn’t want it either.
Not only that, but sellers don’t always give the actual reasons for the sale. It’s not necessarily that they have malicious intent. It could just be that they fear the buyer losing interest if they admit they’re burned out, or that the economy has affected revenue. Or they may have a bit of ego going on.
When I sold my first business, I did so because I simply wanted to. I was proud of what I had built, and the very idea of selling it was exciting. There were other reasons as well, but the overriding reason was that I wanted the adventure and challenge of simply starting up a new business. Some buyers didn’t believe me when I told them that. After all, why would anyone give up a perfectly good business that is earning a solid income?
But that’s just the point – sellers have a wide variety of reasons and motivations to sell, and those reasons may not make sense to a buyer. Here are some of the most common reasons we see among sellers.
This is the most common reason I hear sellers cite. Sometimes, they just no longer enjoy the business and want to move on to something else. Often though, the lessened enjoyment is tied into declining revenues and the discouragement it engenders in business owners, and that blow to morale and motivation can be difficult to overcome.
I hear this one from sellers pretty frequently, and I’ve learned it sometimes masks other reasons and motivations for selling, but this is the reason sellers give because they feel it sounds better than their actual reasons. For example, perhaps they don’t want to admit they’re simply burned out. However, we often change plans or set off on different paths because new and better opportunities come our way, so it’s also true in many cases.
Some businesses decline for reasons beyond the owner’s control, such as economic downturn or a high jobless rate. Some business owners may decide to ride out such changes, but others can’t or simply don’t want to. These kinds of circumstances can also contribute to frustration and, subsequently, burnout.
Negative Industry Changes
While buyers depend on sellers to provide as much information as possible about the business they’re selling, it’s also incumbent upon buyers to do their homework. It’s unfortunate, but some sellers won’t always disclose everything they should. For example, if certain industry changes are coming down the pike that will have a negative effect on the business, a seller may choose not to share that information in order to make the sale.
We’ve actually seen this happen. In 2009, we started to see a rash of people who wanted to sell e-commerce sites that sold mini-motorcycles (sometimes called pocket-bikes). It turned out that recently (at that time) passed legislation on lead content for toys (which these were classified under) would have made them illegal.
If you haven’t investigated the industry well enough on your own, you may find yourself the owner of a business about to go bust. With the pocket bike businesses, we declined to list any of them for sale since we did not feel as if they were viable for any business owner.
Partnerships start with a lot of hope, but unfortunately, sometimes end with bickering. The last agreement between many partners is to divest and part ways. This can sometimes present a good opportunity for a buyer if the partners are in a hurry to sell the business. Again, just be sure you understand the reasons behind the sale, and that they don’t have to do with any potential downfalls in the business itself.
I’m convinced this is a more prevalent reason than most people admit. Even when an owner has a profitable business, they can sometimes make bad decisions which lead to financial difficulties. Liquidating the business can often relieve them of debt or other financial burdens.
A few years ago we listed a business whose owners over-invested in a side project. Unfortunately that project failed, and the owners were left with mounting credit card debt and an inability to pay their vendors. Because the vendors were not getting paid, they stopped shipping supplies. Fortunately, we were able to sell their website in a distressed sale. In that deal, the buyer paid off the seller’s debt to their vendors, and also provided a tidy sum to make a significant dent in their credit card losses. Obviously this wasn’t ideal for these sellers, but it was a much better alternative to bankruptcy, and it was a great opportunity for those buyers.
Playing the entrepreneurial game can be exhausting. Sometimes after people play it long enough, they decide to take their lives in a new and different direction—one that doesn’t include their business.
I know of several entrepreneurs who have built successful online businesses, but simply get tired of being on the computer every day. These entrepreneurs will often sell their business, then pursue an offline venture.
As a buyer, always listen to the seller’s reasons for selling, but also look beyond them for other reasons as this may help you identify the areas of the business that may be a struggle. Always keep in mind that sellers who make the decision to sell are typically already in the process of checking out of their business as well. They may be in a hurry, but you can’t afford to be.
A business should be judged more on its merits separate from the seller, or anything the seller is telling you regarding why they’re selling. Take the time for due diligence so you’re making an educated buying decision.
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