Even though thousands of businesses are sold every year, selling a business is a complicated procedure with numerous factors that have to be taken into account. This article will detail why most businesses are sold and examine the factors that influence the selling process. It will also include some handy hints on how to increase the value of a business when it’s ready to be sold.
The Most Common Reasons People Sell a Business
It is estimated that in 2018, more than 10,300 businesses were successfully sold, and the median revenue per business sold increased 6.3% to $531,653.
Health problems or death
The most common reason people sell a business is health problems or the death of someone intricately associated with the business. Running a business successfully is a complicated and time-consuming process that requires energy, stamina, and good health in general. People who experience health problems, illness, or injury often find that these hinder them in running a business. The result is that they will put the business up for sale. While it is true that most businesses are structured so as not to be totally dependent on the influence of one person, the reality is that when a person’s influence is no more, those left to run the business may find it too challenging and, thus, put it up for sale.
Reaching the age of retirement is another common reason people sell a business. The recognized retirement age in the U.S. is 65, but there are currently moves to increase this to 67. Globally, most countries tend to consider 65 as the retirement age, but like in America, many are contemplating changing that to 67.
Disagreements and disputes with partners
Another common reason people decide to sell a business is irreconcilable differences with their business partners. Basically, when business partners disagree on how to run a business, one or both of them will decide to sell. Irreconcilable differences are accepted as a legitimate reason to sell. In fact, buyers will often see this as a situation where they can make a lower offer.
A common reason often cited for selling a business is a desire to escape the heavy workload involved with running a business. The workload causes stress, which, in turn, begets health problems. For many, the best way to avoid this is to separate themselves from the business by selling it.
Boredom and a wish to take on new challenges
Running a business is a challenge for some, and this challenge stimulates and drives them. When the challenge has been met and the goals achieved, this business owner can easily become bored and soon look for new challenges. This will result in the selling of the business and the search for new ventures.
Attributes That Increase the Value of a Business
There are some key attributes that increase the value of a business for sale, including:
If a business can show a trend of steadily increasing profits, this increases its value and subsequently its asking price when the business is prepared for selling. The key here is for the seller to be able to show not only recent profits but also a consistent trend toward improving profits. Statistics show that 20% of new businesses fail in their first year of operation, and another 50% of businesses will fail before their fifth year. This means that when a business is able to show consistent profits, the intrinsic value of the business increases.
Consistent income generation
When purchasing a business, one key factor for the buyer is the ability of that business to produce a consistent income for owners and employees. Ideally, this should be over three years at the minimum.
A large and loyal customer base
Another factor influencing the sale price of a business is the customer base. A loyal and large customer base is essential because it represents the target market, and therefore a source of reliable revenue. A regular customer base can also be used to supply valuable market research data, such as customers’ perception of a certain product, the strength and weaknesses of that product, and customer behavioral and purchasing trends.
How to Sell a Business
As has been established, selling a business is quite a complicated enterprise that poses a sizable financial undertaking. For this reason, many will engage the services of a business broker.
A business broker can help determine the value of a business, prepare an exit plan for the business owner, and help define the aspects of a business that show increased value. Perhaps most importantly, a business broker can locate potential buyers and help the business owner negotiate the best sale price.
Selling a business is a complicated process that represents a significant financial undertaking for both buyer and seller. A number of factors influence the selling and buying process, and these have to be navigated if a seller or buyer is to get the best deal possible. It is possible to negotiate a sale directly between buyer and seller. Still, many sellers opt to use a business broker to help them package their business and get the best possible price from the sale.