Reasons to sell a business

There are three fundamental reasons: personal, economic and market. 

Personal reasons

Personal reasons are none other than the relationship between the effort and its remuneration. In addition to gambling money, the entrepreneur as a professional must dedicate many hours of work and intellect to generate business enough to earn money and with which to meet the obligations of any company – such as paying its employees, suppliers, debts and taxes. The remuneration of the employer will occur if, once the financial commitments of the listed company have been met, there is a surplus with which to meet his salary as a worker or director and the profitability required for the money invested, keeping in mind the alternative profitability that could be obtained by investing the money in other business opportunities at equal risk. Often, the effort/reward ratio is certainly not enough. 

Economic reasons

The economic reasons are those for which the return in terms of financial profitability is clearly unfavorable. We must consider that the profitability of an investor in variable-yield securities, such as investment in shares, whether being listed companies or not, as is the case of a family business, occurs in two ways: dividends and capital gains. 

In the case of a family business, dividends are often relegated to second place due to the erroneous interpretation that the main thing is not to depend on external sources of financing –such as bank debt, or worse, that the company does not generate distributable profits, which is not the same as not generating enough profits to distribute dividends, but rather that these are invested and there is no money to distribute. 

Obviously, capital gains in the case of a family or unlisted company is difficult to achieve because the shares of these companies are illiquid as they are not listed on a stock market, and therefore, the company is sold in its entirety or in a sufficient percentage that means the loss of corporate control. 

Market reasons

Often, the size of a family business in a fragmented market in which there are multiple competitors, is small and does not allow significant growth in market share and business volumes (in relation to the existing equivalent supply), so the annual results may be not enough to meet the initial expectations of the entrepreneur. In these cases, it is necessary to be pragmatic and look for alternatives in the form of alliances, mergers, or acquisitions of companies to gain an efficient competitive size where to grow in a sustained and relevant way. If the entrepreneur does not see himself with the capacity, enthusiasm, or qualified management team with which to undertake these business decisions, the best thing to do is to look for a good buyer and make a good business deal by selling the company with generous capital gains to meet his initial business expectations. 

The entrepreneur should take these reasons into account in order to consider selling his company in an intelligent and decisive way with the essential help of qualified and experienced professionals. The sale of a company is not equivalent to the sale of a property.