Tuesday, April 24, 2007/
If everything is going along smoothly, why would you consider selling? There may be some very good reasons to sell now.
Why should I sell now?
Most business owners accept the fact that they will sell their business sometime, usually in the distant future when they plan to retire. Some anticipate passing the business down to children, while others plan to sell it to their managers and employees. However, there are some very good reasons why selling out now might be a better option.
First, consider the risk of the business getting into difficulty and you being forced to sell out, and so receiving a much small sale price than you would right now.
Can it happen to you? Certainly! The rate of failure of early-stage ventures is quite high, estimated to be about 50% in the first six years. Even older businesses still have a 2% failure rate. If large businesses like Ansett, Enron, Worldcom, Arthur Andersen, HIH and other large well-established corporations can go under, what makes you think yours can’t?
If you were like me, then you may have the greater part of your wealth tied up in your business. When my business started making losses during a recession, I recognised that it could easily be sold out from under me and I would end up with very little for the risks I had taken, the low salary I had received for many years during its early stages, and the long hours I had put in.
Sometimes you need to capture the wealth in your business so that you get the rewards for that effort. If you are any good at what you do, you can always start or buy another business and develop it and make the money all over again.
Then consider whether your business is the best place for your hard-earned wealth. Even if you are taking $200,000 a year out of it in income, what could you sell it for and continue working? Say you could get $2 million after tax for your business, and you could continue working as an employee for $80,000. Although you are worse off by, say, $70,000 net, you would need to keep your business for another 20 years to be as well off.
But of course you now have $2 million to invest, which could be invested across a range of investments and provide a very secure future for yourself and your family.
Business people usually ensure their children are well educated. This can often mean the next generation become doctors or lawyers and have little interest in carrying on the family business; if they do go into business, they might prefer it to be technology related – certainly quite different to the boring old business their parents founded.
The founder should seriously think of selling all or part of the original business to create an investment fund for new business ventures that tap into the passions of the next generation.
Successful entrepreneurs are capable of developing several ventures throughout their working lives. No doubt some will be more successful than others. Seriously consider whether it is time to take some money off the table from your current venture and then have a go at the next one. In this way you will have put some wealth aside for your future and taken considerable risk out of your life. You might even find that the next one is much more successful than your current one.
For more Dr Exit blogs, click here.