There are many reasons for starting a company and as many for selling it. Few companies are started purely for financial reasons. There are those who startup businesses in order to sell them on, but even then there is usually some passion for the work that is being done. However a company needs to be profitable in order to be viable. Sometimes, it does just come down to the financials and there comes a time when there are economic reasons for a company to be sold.
In this article we will look at some of the economic reasons for selling:
Financing other Projects
There may be other businesses or projects in your life that you want to invest in. The business has been a means of income over time, but now you need capital that can be invested elsewhere. Maybe you even want to start up a different business, now you have been successful in the one you have. This is a good reason to sell your business and focus on the things you want to do.
Difficulties keeping up with competition
Looking at the development of the market, it may be that bigger corporations are dominating the sector. As these corporations have access to greater resources, it may be difficult to keep up with the competition. When a medium sized company gets to the point where they see this competition growing, it may be the best time to look to sell. There are investors who have access to greater capital in order to keep the company successful.
However, there may be internal reasons a business is not doing so well. When profits go down, it is good not only to look at external competition and change in market, but to look at internal structure too. Companies may need to be more flexible and have the ability to keep up with the latest technology in order to keep up with the competition. Make sure you have done all you can to put straight your own house to see if you can turn it around, before putting it on the market.
If everything has been done internally in order to keep the company on the cutting edge there may still be a constant need for investment. Technology is advancing fast and changes are needed to keep up. Sometimes medium sized businesses lack either the resources of the larger companies or the flexibility of the smaller ones. If financial modelling shows that continuation is really unsustainable, then this is the time to sell. Sold to the right buyer and with the right synergy the company can provide a better income and a cut in costs for a greater profit.
A Lucrative Time to Sell
If you are wanting to sell your business for the best price, then it is good to keep your eye out on the timing. When demand is high for buying this will push the price up, when buyers are scarce the price will lower. Another factor to look out for is the concentration in the sector. When larger firms are looking to take on a bigger share of the market, then you are in a good negotiating position. Concentration is becoming more and more common at the moment especially in technology industries.
The Corona Virus Crisis
The Corona pandemic has without a doubt brought a lot of upheaval in the business world. This has led to much buying and selling and reshaping of the market. It is a time when there are many buyers wanting to buy and it is good time to sell. So if you are wanting to sell for economic reasons then the time could be right for you and your business.
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- The World Economic Forum in Davos: Implications for Mergers and Acquisitions - January 24, 2025
