Business Exits: Personal Reasons to Sell

Accountants and MBAs can tell you when external events dictate it is time to sell your business.  Sometimes, however, there are personal events that dictate a business exit.

The trick is recognising that such events may put your business at risk and moving quickly to exit.  The fact is that once one or more of the following have occurred, a sale of business is often triggered. Why would your business be any different?

The Owners Have Lost the Passion for the Business

Many owners and majority shareholders are passionate about their business, but perhaps the passion you felt in your thirties has diminished by your fifties. Staying up all night writing coding or fixing machinery, standing all day at a trade show or listening to yet another distributor tell you “it’s hard out there” – these may all have you wondering whether it is all still worth it.  Maybe your passion for sailing, skiing or car racing is taking over.

Whatever the issue, a lack of enthusiasm for the business is a sign that it is better to sell sooner rather than later – before that lack of enthusiasm causes you to take your eye off the ball and sends the business spiralling downwards.

The Stress of Keeping the Business Going Keeps the Owners Up at Night

There are two different types of business related stress.  One is associated with one-off events. When the event passes, so does the stress. There is, however, a more insidious type of stress. It is called chronic stress. This is when you can’t sleep at night worrying about the business. It is when you wake up each morning hoping it has all gone away – and it hasn’t.   At this point, the business is simply not worth it.  No-one ever lay on their death bed and wished they spent more time at work.

One of the Shareholders is Getting Divorced

As a general proposition, if you have enough trusts, holding companies and lawyers, you can shield your business from creditors, litigants and commercial risk.  As another general proposition, it doesn’t matter how many trusts, holding companies and lawyers you have, you can’t shield your business from your soon-to-be-ex-spouse.

Unless there are other assets to offer the spouse, divorce can trigger a sale of the business.  Even if your marriage is rock solid, the divorce of one of your partners or shareholders can trigger a sale.

The Shareholders are Having a Dispute

Shareholder conflicts can trigger a sale.   Examples of conflicts are when:

  • There is a falling out between the shareholders
  • One shareholder wants to retire and another wants to borrow money and expand
  • One shareholder wants to be paid dividends and other shareholders want to reinvest the funds.

Without a written shareholders’ agreement, these opposing views make it difficult to continue.  Even with a shareholder’s agreement, there is often a clause allowing one shareholder to put his/her shares to the other shareholders and for them to buy those shares out in 30, 60 or 90 days.  That sounds fine in theory, but often the other shareholders simply cannot come up with that much cash in that period of time.  So the business goes to market.

One of the Owners has a Sudden and Serious Health Problem

A debilitating or life-threatening illness is all it takes for most business owners to quickly consider selling. Usually this is because they cannot continue in the business. In a few cases, however, it is because they have had such a wake-up call that they realise there are more things in what-is-left-of-their-life than grinding it out in the business.

Family Disputes Are Spilling Over into the Business

Disputes between brothers, sisters and parents can spill over into the business.  At other times, a co-owner dies and leaves his or her share to a surviving spouse. That spouse can end up in a business they don’t understand with shareholders or management they don’t agree with. Either of this situations can paralyse a previously successful business and force a sale.

The Disinterest of the Next Generation

Many business owners who have built up successful businesses to hand on to their children often find that their children are entirely uninterested or unsuited to running it.  In this case, the best course may be to sell the business entirely.

The Dripping Tap

Finally, there is the case of a business that is steadily losing money and the owners are unwilling to put further funds into the venture.

Summary

One way or the other, the sale of your business can be one of the most important events in your life.  Ideally you will:

  • Place it in the hands of a well-capitalised and committed buyer who will take it to the next level of success, and
  • Sell it for enough money to solve your problem – whether that is to fund your retirement, rebalance your investment portfolio or fund your next business.

The decision to sell a business is a big one, but the failure to make that decision can be devastating.  Not recognising the right time to sell may mean that the opportunity has passed forever.

If any of the above reasons strike a chord with you, then start work on your exit plan today.

Ben Killerby B.Juris., LL.B., LL.M., M.A.I.C.D.

Ben is the manager of the Saxon Klein Corporate Advisory section. He has 21 years of experience in law and in private enterprise. As a lawyer, he worked in mergers and acquisitions at major law firms Mallesons Stephen Jaques in Australia and Simmons & Simmons in the City of London. In private enterprise, he has been involved in major property and corporate deals, including the establishment of the original Packer Murdoch Telstra pay television network in Australia (Foxtel).

Ben has three law degrees, including and Masters of Law from the University of Melbourne. He is also a legal practitioner admitted to the Supreme Court of Victoria, the Supreme Court of Western Australia, the Federal Court of Australia, the High Court of Australia and the Supreme Court of England and Wales.

He was the Team Attache for the Australian Olympic Winter Team at the Vancouver Olympic Games.

Contact: potential@saxonklein.com.au
Telephone: 1300 898 898
Twitter: @benkillerby