This article are provided for information purposes only, and are not intended as legal advice.


Businesses for sale, why do people sell a business in poor times?

July 24th, 2009

The economy has changes, business was booming a year ago but last fall, everything changed, the economy slowed down, customers went bankrupt and consumers stopped buying.  The profitability of your company is marginal and many companies are struggling.  Some may be losing money but still have large debt repayment obligations such as loan, mortgage or lease payments.  Would you sell your business in this situation?  Some would and here is their reasoning.

 

You are losing money and just landed a new large customer. All the profitably and the survival of the company is dependent on this new customer. If the sales materialize and you will be very profitable.  If you only get part of what was promised or you lose your customer, you could lose your business.  Do you go for the sure thing and get a contingent purchase price and sell your business with a bonus dependent on the sales to the new customer over the next three years?  If the sales materialized, the business will be worth a lot more money and you will have sold the business for too little money.  You know that without this customer, the business will continue to struggle. 

 

You have two options, hope the company turns around or sell the business now and keep your capital from eroding.  Many people go for the sure thing, they are risk averse, they could get more for their business but if they lose that customer, they could lose their equity in the business that they worked so hard for.

 

Remember, there is no right or wrong decision.  Hind sight it great.  You can always make a decision if you have no uncertainty but that is not an option.  You have to decide at your stage in life, are you a risk taker or are you conservative, are you prepared to live with the consequences of your decision?  You cannot regret the decision that you make, if you do not make a decision, then you have to live with the results that happen.  If you are smart, you are proactive and make a decision to keep the business or sell the business. 

 

Many years ago, investment advisors thought that you bought the shares of a public company for life.  Buy and hold strategy used by Warren Buffett.  Many people have gone away from that principal and continue to re-evaluate their portfolio on a regular basis.  With a private company, you should still have that same discipline, re-evaluate your goals, the direction of the company and decide to keep the company, grow it to the next level, realize that you may not be capable of growing the business to the next level, be happy with the size and success of the company today or minimize risks and sell the business.  The decision made by one person will not be the same decision made by someone else.  The decision is personal and should be made based on your own personal situation, not that of your advisers, your kids etc.


Filed under: Sell a business,Succession — Gary Landa @ 7:45 am


1 Comment »


  1. great post! must read before getting into a business. :)

    Comment by business for sale — July 29, 2009 @ 11:48 am


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