SELLING A BUSINESS WHEN FACED WITH TECHNOLOGICAL THREATS?
This is an important question for business owners to consider since selling a business early in a business cycle might be critical. There are certain circumstances where it can be best to sell a business, and there are a few factors to consider first.
WHY SELL A BUSINESS
Selling a business might seem like a bad idea — after all, some businesses earn less money during trying times. However, selling a business may not be the worst option.
Because some businesses lose their value or do not survive, owners might get the best return on investment (ROI) from selling. The percentage of businesses that stay open declines with age, and any one of the above may be the final straw for a business showing poor results.
The following are a few reasons why business owners might want to sell their business during these times:
1. The business sees an increase in sales: If a business sees an increase in sales, it will be more appealing to potential buyers. For example, marketing affordable, low-priced goods will maintain their popularity as buyers love bargain and shift away from expensive competitors.
2. The business specializes in necessary goods and services: If a business products and service are necessities for their end customers, business owners will experience minor impact from the above. Businesses in these situations will sell in any environment.
3. The business sees a reduction in sales: Sometimes, selling a business is the best way to earn a ROI. If business owners experience a reduction in their sales, the business might cost more to keep. Owners may even have to accept a lower sale price, but this option often prevents losses from accruing as the environmental forces encroach increasingly on your sales.
4. The business was already ready to sell: If a business owner was already planning to sell their business when any of the above occurred, it is usually best to move ahead as planned. The business owner has been initiative-taking and is ready to transition.
WHY NOT TO SELL A BUSINESS DURING A CHANGE IN THE ENVIRONMENT
Concerns about financial stability during an environmental shift are natural for any business owner. While selling a business may seem like the right thing to do when facing challenges, it may not always be the only option.
There are a few reasons why selling a business during an environmental shift is not a promising idea:
1. When fear is driving the business sale: It is never a good idea to let fear drive any business decision, but especially not a sale. Business owners should avoid letting concerns about the environment dictate whether they sell — after all, any of the above does not guarantee a drop in sales or value.
2. When the owner is still enthusiastic about the company: If a business owner is still enthusiastic about the business, it is worth sticking through some trying times. They may have to make tough decisions about operations and staffing to stay afloat, but these sacrifices can set the company up for long-term success.
3. When there is potential for growth: If a business has capital and or continued access to capital, they might be able to convert any of the above into a period of growth for the company by purchasing smaller adjacent or rival businesses.
FACTORS TO CONSIDER BEFORE SELLING
There are factors business owners should prioritize if they are considering selling at any time. Culture and People are critical beyond recruiting, selecting, and retaining a strong management team which is an important part of preparing a business for a sale. A great culture and good management practices can go a long way toward ensuring the successful sale of a business to as broad a buyer audience as possible.
Shareholders should know the consequences of where they decide to invest their own time and resources of their business. Only then can they as operators of their business best understand their strategic options.
Have an independent third party conduct a business valuation. Owners need to understand both the asset-based valuation approach which is ideal for businesses with value concentration in specific objects or properties, and the market approach, that focuses on competitive advantages. How the business compares to its peer group in terms of its economic business model, customer loyalty, reputation, revenue growth, gross profit margins, and operating efficiency all contribute to value creation.
Accurate and timely performance data from the rolling last twelve month and previous three fiscal years is necessary for the business owner to be accurately informed and for third parties to understand the business, plus it acts as evidence for positive cash flow and a healthy profit margin. In a shifting environment, timely, accurate and detailed internal reporting capabilities can significantly increase the odds of avoiding being a victim to the environment and consequently attract more interested third parties desiring to own your business.
Organize and highlight any aspects of the business that hold a competitive advantage, which is not easily copied or replicated by rivals.
WHO SHOULD SELL A BUSINESS DURING A CHANGING ENVIRONMENT?
Whether or not a business owner sells during an environmental shift comes down to the state of their business, the industry they are in and the niche to which they are marketing. It is usually best to sell a business early, and preparing the business for a sale is crucial. Build a stable, dependable management team and invest time and resources in assets or features that will increase the business’s value. To understand what those business qualities are for your specific business start with a business valuation.
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