The true test of your success as a business person is not how much revenue you produce, or how many distributors you have or how many countries are your export destinations. The true test comes when you sell your business:  were you able to convince someone other than yourself to buy into the dream?

When you sold your business, were you able to put the business into the hands of a well-capitalised buyer who took it to the next level?

Behind the decision to sell a business are a number of drivers.  Set out below are some of the drivers for corporate disposals of a business unit.

Non-Core Asset

Whether you are a key executive in a large manufacturing company thinking about a divestment, or an SME owner selling a business, it can be because you have determined that it is a non-core asset or division.  Usually this is because it:

• No longer fits within the corporate strategy,
• Is requiring too many assets,
• Is requiring too much management time, or
• Is being sold to pay down debt.

Too Much Wealth Tied Up in One Investment

For corporates, the question is diversification: how much of the balance sheet should be devoted to one line of business?

For individuals, the question is ?how much of my personal wealth should I have in one investment??  Five per cent?  Ten per cent?  Ask your accountant or financial planner, but it probably shouldn?t be more than 20%.  Business owners, however, have a disproportionately large amount of their wealth tied up in their business.  A decision to reduce your exposure to one asset class such as a manufacturing business or can be a trigger for sale.

Global Events Have Conspired Against the Business

Take a moment to think of the headiest days of your business. Were they when the dollar was low, domestic demand was high or ?the China story? was not yet underway? If your products today are just as good, but your best days are behind you, then it could mean that things outside your control have changed. Perhaps you and your shareholders feel it is just too hard to continue in this new environment.

The Bank Has Tightened its Lending Criteria

Gone are the days of automatic renewal of banking facilities.  Industrial land previously valued at $10m would give you a 70% loan to valuation ratio (?LVR?), meaning you could have a $7m loan.  If that property is now worth only $8m, then the bank will drop to 70% of this new valuation i.e.: $5.6m.  This is a reduction of $1.4m.  This means you have to reduce your borrowings or sell some assets to cover it.  Do you really want to sell other assets to continue to fund your business?

The 800 Pound Gorilla

Another trigger for considering a sale is when an ?800 pound gorilla? enters the market ? a competitor so big that it is only a matter of time before it starts devouring your customers and market share.  In this situation, it is often wise to sell out before the inevitable happens.  It doesn?t just have to be a competitor.  The ?gorilla? can also be a dominant retailer, distributor or customer who makes your margins razor thin or non-existent.

Conclusion

Non of these are personal reasons.  They are backed up with solid business logic ? it is just time to go. In fact, it is the sign of a better business person to recognise that the wind has changed than to persist when things are clearly going against you.