When selling a business, there are typically five primary selling motivators.
Exhaustion of the business owner or the business itself is a top reason a business is sold or is 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 ten years or more, with the same old routine, the mindset often changes. Even if the marketplace the business occupies presents exciting new opportunities for growth (e.g. structural market changes, new technology advancement, new legislation, etc.)! Business owners sometimes simply don’t want to go through the next growth curve and would rather let someone else with more energy, passion, and drive go on that journey.
For example, 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 the business and everyone else in the market. The seller just didn’t have the energy and passion for putting in three to five more difficult years of sweat opportunity, so he wanted to sell. The owner had fear, uncertainty, and doubt about competitors, and so the trusted, safe pair of hands was appealing to him as a way of leaving the business but maintaining peace of mind. Although the owner wanted a nominal sum of cash on completion, the market opportunity and balance sheet strength afforded almost 3x the amount of funding required, so it was a fantastic deal for everyone involved. Obviously, this is one type of seller you want to target.
3) Lifestyle Change
Sadly, lifestyle changes are very common, and these clearly fall into our wanted seller category. Sometimes owners themselves get sick, as do spouses and other family members.
I was criticized once in the media for appearing to profit from an owner manager who gave me his business so that he could spend his time treating his wife, who had a terminal illness. In actuality, the owner still thanks me to this day for what I did for him; yet he gave me his business for free. How did I achieve this win-win result? The owner’s first concern was his wife and therefore he was sick with worry, which had caused him to take his eye off of the ball in terms of his business.
The business, with twenty-five years of strong, profitable presence in the market, would have collapsed within six months if I hadn’t stepped in. After concern for his wife, the owner’s secondary concern was the leases and other contracts he had signed up for on behalf of the business, as well as the welfare of his staff and his customers who were on long-term contracts.
The owner believed he would have to close his business due to his life changes until I found him through one of my many origination techniques. He drove one hundred miles to see me the very same day I contacted him, and we had a deal within two hours. He was then able to focus on taking care of his wife with a sense of relief regarding the state of his former business, customers, and staff. While he tended to his wife, I put the business back on track. Once she sadly passed away, I allowed the former owner to come back and consult for me, as he understood the nuances of the market; he remains a valuable member of the team. So you see, this type of seller is someone we want to target, for all the right reasons.
Sellers to Avoid: A Word of Caution
The final two motivators are certain types of sellers to avoid:
4) Serial Entrepreneur
One strong motivator and one you need to avoid is the entrepreneur versus manager conundrum. Some people are born entrepreneurs and love setting up businesses. I discussed earlier the very high risks involved in building a start-up and the personal and financial sacrifices that are required. You can bet that an entrepreneur will not sell out for less than top dollar if they are in the 4% that have survived over a ten-year period. You see, once entrepreneurs have built the business into something established, and it 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 some fun, then go onto the next venture in the bucket list – this is what we call a serial entrepreneur. The entrepreneur may even invest in other people’s ventures.
5) Desire for Cash
There are always owners that want to cash out of a business. Every business is for sale at the right price. For obvious reasons, avoid these sellers like the plague, unless the business has hit a performance peak. If the plateau is caused by market dynamics or anything else that you cannot directly influence, strike these off the list and move onto the next one. What you will find, however, is that businesses peak as a direct result of the owner-manager running out of energy and then (as above) they are definitely on our target list.