Advice for Entrepreneurs, Explanations of Common Financing Jargon, Editorial
The Psychology of Selling a Business
There are many reasons why owners and founders come to Mirus Capital Advisors to sell their business, and I will spare you a comprehensive list, but in 17 years of selling businesses, I’ve been fascinated to see how often psychology comes into the decision-making process. By far, the most common answer to the question “why sell now?” is “I’m expecting congress to raise the capital gains rate next year, so I want to sell now before the taxes go up.” However, the truth is usually that the business owner has come to this decision primarily as a result of health concerns, timing, or divorce.
- Health: This is a broad category, and my partners and I have worked with business owners who were in failing health as well as those who were quite fit – but in many cases it’s not the owner’s health that drives this decision. In many cases, the business owner was touched by some personal tragedy that reminded them that life is short. In some cases it is the death or illness of a spouse, in others it was a tragic accident or terminal illness that took away a friend, employee, or loved one. An oft recurring theme is the owner who is approaching the year in which their own father died of an unexpected heart attack – typically in their late 50’s or early 60’s.
- Timing: No business owner has ever said candidly that they just had their best year ever, and they don’t think they can repeat it. But this fear is often a critical driver of the decision to sell.
- Divorce: Here I include both the dissolution of a marriage as well as the break-up of a business partnership. Sometimes the sale of the business is a condition of the divorce or other legal settlement, but more often the business owner sells the business in order to make a clean break from their partner or spouse.
What can we learn from these top three? For certain, the sale of a business is deeply personal and confidential. My partners and I often know about a potential sale long before the business owner tells their loved ones. Also, the decision is often driven by emotions and personal circumstances that have nothing to do with market conditions.