Five Reasons Business Owners Sell Their Business When They Shouldn’t

by | Jun 16, 2019

There are good reasons to sell a business and bad ones. However, when you look at the typical literature, most of it is geared toward large enterprises worth much more than a typical business. If you take less than you should for a business worth $50 million  dollars, it’s unfortunate, but it doesn’t affect how you live your life. If you sell your business for too little when the business is your primary retirement asset, it can be life-altering.

There are many good reasons to sell a business:

  • The owner is ready for a new challenge
  • Leveraging timing: selling at the top of the market
  • Serious medical issues
  • Divorce
  • Buyer who is willing to overpay
  • Business is worth a significant amount of money and will secure your financial future permanently

Any of the above reasons make sense, because the seller has either a catastrophic personal event or is selling the business for enough money to secure their finances forever.

For most business owners, these scenarios are not in play. Most of the time, business owners are contemplating selling their businesses for other reasons – bad reasons. The following is a list of the wrong reasons to sell your business:

  • Need funds for retirement. Your business may be worth far more as an income-producing asset than any lump sum. Read this article to determine what’s best for you.
  • Sick of the headaches. There’s another name for this: “Giving up.”  Every business owner has headaches. From our experience, it’s not that the business has more headaches than it did five years ago, it’s that you are less willing to put up with them. Good! Don’t sell the Golden Goose because it pooped in the yard. Put up a fence (i.e., fix the issues) and keep the goose.
  • Lost  passion. No worries, it happens. Don’t make a bad financial decision simply because you don’t have enough passion for the business. Do you have a strong passion for your Google stock? Your lack of passion is for your job, not your investment in the business. Treat them as two decision points, not one.
  • Worried about the economy. If the economy goes bad, your investments will tank. If you run the math, the financial returns are probably better if you shift the business model  to “recession mode” than to trying to invest in a bad economy, right?
  • The  business is stagnant or struggling. Business buyers aren’t stupid. They will figure this out and pay accordingly. You don’t need to fix these problems to Half-Retire. The business can decline ten percent for a decade and still pay you well.
  • Medical Problems. Yes, this item is on both lists. It can make good sense to sell a business for medical reasons, and it can also be a bad one. When making an important decision like this, treat your work/job at the business as one thing and the equity in the business as another. (Read this article for more explanation)  If you need to quit your job due to illness, that’s understandable. However, you may not want to forego your ownership equity also.
  • Divorce. I could write a book on how many times I have seen a business owner get the shaft due to divorce. Here is the really short version – You are NOT an indentured servant to the business, and your former spouse should not benefit from your value to the business. Ask yourself, “What is the value of the business if I walk away?” Business valuators place an unfairly high value on the business that includes your intrinsic worth. That is YOUR worth, not your ex’s. It takes a special lawyer to extract this value for you, but it can be done. I’m not a lawyer anymore, but my two cents:  Tell your ex to take the business and pay you the cash. I bet the valuation goes down quite a bit when they have to pay  to run the business without you.
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