Why Entrepreneurs Are Selling Too Cheaply Comment Now Follow Comments

Entrepreneurs rarely go into business thinking about how they might sell the enterprise one day. But as the business grows, there does come a time when owners start thinking about an exit strategy. They may have any one of several reasons for wanting to sell up. Some may have plans for a new business venture. Others may be closing in on retirement. Some people simply enjoy getting successful businesses up and running, but get less satisfaction out of the day-to-day running of them.

Having put so much hard work into the business, it seems logical that entrepreneurs would want to extract as much value as possible from a sale process. But that isn’t necessarily the case according to research from the accountant Moore Stephens – it warns that many entrepreneurs are limiting their potential to secure value because they feel uncomfortable with certain types of sale.

In fact, one in three owners of a small or medium-sized enterprise in the UK today is thinking about some form of exit over the next five years, Moore Stephens claims. But the accountant says many people have strong negative feelings about particular types of exit.

“Business owners looking to exit in the medium term owe it to themselves to fully understand all the options in front of them when planning their exits,” says Debbie Clarke, head of M&A at Moore Stephens. “While options like a sale to private equity might suffer from a touch of prejudice in the minds of some, it can be the best way to realise a successful exit in some cases.”

In fact, Moore Stephens’ research found, a private equity sale is just one of several possible exits that business owners reject when thinking about a sale. These are the exit strategies that large percentages of entrepreneurs say they would never consider when exiting their business:

• Sell a minority stake: 89%
• Pass the business on to a family member: 72%
• Sell to someone outside the core market: 71%
• Sell to a private equity group: 68%
• Sell to an international competitor: 67%
• Sell to an individual investor: 59%
• Sell to the management team: 58%
• Sell to a UK competitor: 44%

Entrepreneurs may have all sorts of reasons for feeling this way. The idea of selling a minority stake, for example, sits uncomfortably with owners who fear loss of control or equity dilution. And while many entrepreneurs build businesses that could become family concerns, their children may not be interested in taking over – or not up to the job of doing so.

Often, entrepreneurs think they have the best interests of the business in mind – this may be why they don’t want to sell outside of the core market, say, or to a competitor. But it’s important that they learn to let go – while they’ll always be proud of the business they’ve built, once they exit, it’s someone else’s job to worry about the company.

“Only those who have properly prepared for the [exit] process are likely to attract purchasers willing to pay generous multiples,” adds Clarke. “Being flexible might well be the best way to secure the most profitable exit.”