Why Business Owners Sell, According to the Data

Retirement is the number one reason business owners sell, but 40 to 50% of business owners sell for other reasons. For over a decade, the IBBA and M&A Source Market Pulse survey of M&A advisors and business brokers has been tracking what motivates owners to sell their businesses. And the reasons have been fairly consistent over the years. After retirement, these are the leading reasons according to the survey: 

1. Burnout

The long hours and constant demands of running a business can take their toll, causing 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 leadership responsibilities or overlook growth opportunities. Worse yet, owner burnout can infect employee engagement and customer loyalty.  

The best time to sell a business is when its on a growth trajectory. Buyers pay a premium for businesses with above average financial performance and growth. It can be hard to make the decision to sell under those conditions, but that’s also when buyers are prepared to pay the most.  

2. New Opportunity

Sometimes business owners decide to shift gears and pursue a new business 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 for them, and maybe they’ve received a great job offer. 

According to the Market Pulse Report, selling for a “new opportunity” is more common among Main Street business owners (i.e., businesses below $3 million in enterprise value) than those in the lower middle market. Small business owners have less financial investment, which may make it easier for them to unwind or sell. 

3. Unsolicited Offer

If you run a successful business, you may receive unsolicited offers from buyers interested in acquiring your company. Financial buyers, competitors and consolidators 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 below market. Before you accept such an offer, have an M&A advisory firm like ours objectively evaluate your business and estimate what it should sell for, and work to protect your best interests.  

4. Family Issues

Life happens. Divorces and family conflicts, illnesses and deaths can prompt an owner to sell. Some owners want to have more family time, or relocate to be near grandkids.

Many family issues are what we call 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 partner conflict, recapitalization strategies can help one partner keep the business while compensating the departing party. Getting a regular valuation 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.  

Plan Ahead

There are a variety of other reasons business owners sell. Maybe they are ready to take some chips off the table, or the industry is consolidating around them, or they just think the business itself would benefit from a new owner with different skills and more energy.  

Even if you don’t know when or why you’ll exit your business one day, there are things you can do to receive the best value for your business when you exit.  Consider an Assessment of value, exit options and sale readiness by an M&A advisory firm. Learn about different tax strategies available.  Incorporate exit planning into your strategic planning process.  

For further information on this subject or to discuss a potential business valuation, sale, merger or acquisition need, confidentially, contact Al Statz at 707-781-8580 or alstatz@exitstrategiesgroup.com.