“I’m better off keeping my business” is not an uncommon reaction when we provide business owners with a genuinely achievable guide price for their business, as opposed to an inflated price designed only to seduce the owner into committing to sell. The reason it is not altogether a surprising comment is that in the majority of cases it is true! From a financial perspective, if an owner is happy to continue to run and develop his or her business, with an expectation that the business performance will remain stable or improve, then the maths will say to keep the business.
The logic for this argument is founded in risk analysis. Buying a private business is a fairly risky type of investment, full of uncertainties - revenues are often not supported by long term contracts, in the digital age competitors are ever more visible to customers and employees are ever more mobile thanks to job-boards, Linked-In etc. In order to mitigate these risks, buyers expect to achieve a yield on their investment of perhaps somewhere between 20% and 35%, which translates to getting their money back in 3 to 5 years. Assuming the seller might make similar levels of profit if they don’t sell and then they still have the business as an asset at the end of the timeframe, it is rational to conclude that “I’m better off keeping my business”.
So if you don’t sell a business purely for financial reasons, why do people sell? The most common reasons that we come across include the following:
- It’s not fun anymore. The creative input that characterised the first years of the business have now largely been replaced by issues relating to people, legislation and process.
- The business has expanded to a level that makes it impossible for the business owner to manage everything but he or she struggle to delegate and is not comfortable making the necessary investment in resource to take the business to the next level.
- Health reasons or changes in family circumstances that mean the business won’t receive the level of attention required and so is at risk of deteriorating in the medium term.
- The business owner has something better to do and wants to crystalize the value created in the business to date, possibly to invest in a new project or to give the financial freedom to recover a work / life balance that has been neglected.
- There are industry threats / economies of scale arguments that mean the business is better positioned to survive or grow under the auspices of a larger owner.
It is notable that if some of the above factors are at play, then post a sale many businesses will actually enjoy a new lease of life, sparked by the injection of new blood, new capital and new ideas and generating renewed enthusiasm from the existing employees.
When a business owner decides that it is the right time to sell, Anderson Shaw is confident it has the expertise to deliver the best achievable result for the seller. In the meantime, we will always offer honest advice and the truth is that if you remain driven and happy in your work, you’re very likely “better off keeping your business”.