Why do businesses change ownership?
We have all seen New Ownership! signs while we are driving or walking around town. We may often wonder what happened to the previous owners or if the place will be better — or worse — with the new owners.
Have you ever thought about all the behind-the-scenes work that goes on to change over a business? Or, maybe you are business owner getting ready to sell your business or buy a new one.
Read more to learn about the most common reasons that businesses get sold and what you can do before buying an already established business:
Businesses are brokered and sold all of the time. Sometimes, when a business with a long history in a place goes for sale, it causes sadness or concern. Other times, hardly anyone notices when there is a transfer of ownership because the new owner is just as capable as the old one and the products or services they offer are not subject to much change. The best case scenario with a business transfer is, of course, when an energetic new owner buys a business, upgrades it, and infuses it with new life. Even the most stubbornly change-resistant customer finds it hard to mind when things improve.
There are a long list of reasons why a business may change owners, and it would be a mistake to jump to conclusions about a business’s viability or track record from the fact that it is for sale. Consider the following most common reasons for selling a business:
- Retirement – Many business owners choose to pass along their company to children or other friends. Some businesses, of course, were only ever meant to be one-person jobs and are owner-dependent that they can’t easily be sold. But if a business is viable and there is no one in the family available or interested in taking it over, there’s no reason the owner’s retirement should be a strike against its sale, especially considering that most owners are happy to assist in a reasonable transition period and are deeply and naturally concerned about their company’s continuity.
- Burn out – Entrepreneurship can take a lot out of a person. Owning a business is seldom a part-time or even a 40-hour-per-week venture. Entrepreneurs often are more interested in building a business than the day-to-day slog of nurturing or maintaining a business. So after the business is established, they sell it to a person who is more long-term or maintenance minded and a better fit for management.
- Life circumstances – Life happens, even for business owners, and sometimes it makes their lives too too demanding to continue running their businesses. The load caused by health problems, increased family responsibilities can bring a business to a halt. Divorce or other family break ups can also force successful entrepreneurs to close their doors.
- Increased regulation – It’s become clear over the period of the implementation of the Affordable Care Act that the squeeze the new law would put on doctors was creating a strong disincentive for them to remain practicing. So many doctors were dissatisfied by the combination of new requirements and lowered compensation that plans for early retirement were very common in the medical profession. People don’t look at doctors, dentists, or accountants as small business owners with bottom-line considerations, but they are. If a business isn’t profitable, the owner will eventually close it.
- Increased competition – Often what was once a greatly profitable business venture will become less so when others discover its potential. Mary Ann Faulkner spent a number of years growing and selling heirloom tomatoes in West Michigan before everyone else was trying to grow and sell them as well. She left that business and transitioned to mushroom growing at The Urban Mushroom because the demand for locally grown mushrooms in Grand Rapids is now on the upswing for both restaurants and individual foodies. Health enthusiasts touting the superfood qualities of mushrooms, from dental health to immune system bolstering. Because of the scarcity of suppliers for mushrooms, Faulkner can find space to sell at local farmer’s markets – whereas with heirloom tomatoes, there was only a long wait list for sellers.
- Management miscalculations – A business can be potentially profitable, but not under the current management. Some business owners will see this far in advance and get out of the way. Others will wait until things because less profitable over time. They will have a harder time selling their businesses for a decent pric.
The most important thing to remember about buying an already established business is to do your due diligence. Many of the above reasons for a sale are not concerning in and of themselves. The right management can turn a floundering business around, but if there is an insufficient market for the product or service being offered, even the most skilled entrepreneur will struggle to make a profit. It always pays to fully research a business market and any intended acquisition and to do so as objectively as possible.
Photo: Diana Parkhouse (flickr)