When selling a business, there are typically five primary motivators a seller may have… only three of which you want to target.
As we discussed in my last article, exhaustion of the business owner — or the business itself — is a top reason a business is sold or required to change ownership.
In this case, the owner-manager feels he has taken the business as far as he can. Once people have owned businesses for 10 years or more with the same old routine, their mindset often changes.
Even if the business occupies a sector with exciting growth opportunities (e.g., structural market changes, technology advancement, new legislation, etc.), business owners sometimes don’t want to go through the next growth curve. They would rather let someone with more energy, passion and drive go on that journey.
I helped an associate of mine acquire an asbestos removal company last year. The business was in a country that had just introduced new legislation that provided a significant growth opportunity for everyone in the market. The seller just didn’t want to put in three to five more difficult years of sweat opportunity, so he decided to sell.
The owner had fear, uncertainty and doubt about his competitors. He wanted to leave the business with peace of mind, and my associate’s “safe pair of hands” was appealing. Although the owner wanted a nominal sum of cash on completion of the deal, the balance sheet strength and market opportunity afforded almost three times the amount of funding required. It was a fantastic deal for everyone involved.
- Lifestyle Change
Sadly, lifestyle changes are common and fall into our desired seller category. Sometimes owners themselves get sick, as do spouses and other family members.
I was once criticized in the media for appearing to profit from an owner-manager who gave me his business so that he could spend time tending to his wife, who had a terminal illness.
In actuality, the owner still thanks me to this day.
How did I achieve this win-win result? The owner’s first concern was his wife. He was sick with worry, causing him to take his eye off his business. The business — with 25 years of strong, profitable presence in the market — would have collapsed within six months had I not stepped in.
The owner’s secondary concerns were for the leases and other legal agreements he had signed, as well as the welfare of his staff and customers on long-term contracts.
The owner was planning to close his business until I found him through one of my many origination techniques.
Instead, the very day I contacted him he drove 100 miles to meet me… and we had a deal within two hours. He was then able to take care of his wife while knowing his former business, customers and staff were secure.
When his wife sadly passed away, I asked the former owner to consult for me, as he understood the nuances of the market. He remains a valuable member of the team.
Sellers to Avoid: A Word of Caution
The final two motivators are certain types of sellers to avoid…
- Serial Entrepreneur
One strong motivator is the entrepreneur-versus-manager conundrum. Some people are born entrepreneurs and love setting up businesses.
I’ve discussed the very high risks involved in building a startup, including the personal and financial sacrifices required.
You can bet that a serial entrepreneur will not sell for less than top dollar if they are in the 4% of startups that survive more than a decade.
You see, once serial entrepreneurs establish a business that needs proper management, they get bored. I have seen it hundreds of times in my career. They want to sell out, have a break and then go on to the next venture on the bucket list.
- Desire for Cash
There are always owners that want to cash out of a business. Their business is for sale at the “right price” and they can be difficult to negotiate with.
Avoid these sellers unless the business has hit a performance peak resulting from the owner-manager’s stagnation.
So those are the five reasons why sellers sell.
Make sure your seller is exhausted, has stagnated or is going through a major life change.
If they’re a serial entrepreneur or just want the cash, don’t waste your valuable time.
Until then, bye for now.