Risks and Rewards of Selling a Business

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There are no black-and-white rules for determining when selling a company is a good idea. Mergers and acquisitions, outright sales, and collaborative agreements are all a part of modern business, but not every deal works out in the way its players envision. This is why it is so important to measure the risks and rewards of selling before the process of preparing a company ever begins.

There are definite advantages to selling. Business owners may sell to retire or step away from a company so as to pursue another opportunity. There are other times when a company can do better by merging with another. Indeed, the advantages are too numerous to list. Yet the risks are equally numerous. If not approached pragmatically and from a position of strength, those risks can lead to serious problems going forward.

The Rewards of Selling

If you are considering selling a company now or at any time in the future, what is your primary motivation? The rewards of selling depend on your answer to that particular question. For example, you may be primarily interested in securing long-term income if you are selling for retirement purposes.

As I see it, the most important rewards of selling are as follows:

  • Improved service and products for customers;
  • Better company performance as a result of increased size;
  • Greater access to vendor products and services;
  • Greater access to internal company resources;
  • Reduced costs that come with size; and
  • Organic growth via shared knowledge, experience, etc.

 

The Risks of Selling

Whether selling a private company or agreeing to the acquisition of a public one, a risk assessment is always in order. No sale or acquisition can be guaranteed to be a hundred per cent safe. There are always risks involved. Those risks can include:

  • Confusing or alienating customers
  • Damaging a company's reputation
  • Complicating the decision-making process
  • Alienating employees who are resistant to change
  • Wasting resources through duplication and efficiency
  • Complicating or diluting brand strength.

 

Ask Why, Then How

The lack of black-and-white rules governing the process of selling a company tends to put business owners in a precarious position. I encourage business owners to first ask themselves why they want to sell. As previously stated, motivation is a significant factor in implementation. Once motivation has been established, a business owner can begin asking how the deal is going to get done.

Completing a favourable transaction requires a thorough analysis of both the rewards and risks of selling. Rewards need to be maximised while risks minimised. This is where the help of experts becomes invaluable.

Business brokers like myself, who specialise in sales, mergers, and acquisitions, have a unique ability to step back and analyse risk and reward from a disassociated, third-party perspective. We can help business owners better understand what is in their best interests in both the short and long terms. Most importantly, we can help those who have decided to sell to work out a deal that maximises rewards and minimises risks.

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Author: Tim Luscombe

Hello, I'm Tim and I'm a specialist in corporate finance for the owner managed business. If you've been approached to sell your business, or you are thinking of buying a business or you just want to know what your business ...