Merger and acquisition firms and business brokers often seal the deals where a given venture is running at a profit. However, people that have just ventured into this domain and looking to acquire a business have their doubts when they see a profitable venture on the block.
There is a general misconception that only businesses operating at a loss are up for grabs. It’s just one condition when an owner decides to put up his/her venture for sale. Otherwise, there are lots of scenarios where proprietors of profitable ventures go on to sell their business equities. In short, selling a profitable business is a perfectly fine deal and doesn’t entail any dubiousness.
We are putting down a list of some compelling reasons where people leading profitable ventures decide to sell them.
1) Profits But with Stalled Growth
Businesses work with an interesting metric. Even if they are making profits, they still need to grow to avoid the eventual demise. So, when growth reaches plateau amidst profits, many decision-makers start mulling over selling their ventures. It is important to mention here that hitting the growth plateau is a regular phenomenon in the commercial landscape and businesses people are well aware of this.
Many people believe that growth has a linear relation to profits. However, that’s not the case. It’s not necessary that a profitable entity has enough resources to funnel into its desirable growth. The realization that their current profits can’t keep up with the pace of required growth persuades many business owners to hand over their ventures to the groups that have the required resources.
Example: Let’s suppose a venture operating at $5,000 monthly profit requires the capital of $50,000 in the next six months to match the current industry growth. It is obvious that they can’t do it without taking loans. The owners also know that if they don’t take the necessary growth measures, they will lose out a major business chunk to the competitors in the next one year.
Meanwhile, they receive a 100,000 buyout offer from an equity firm with enough investment resources to reach the growth target. In this given scenario, selling the business is a lucrative option for the owners. One can’t interpret it as a receding or evading action. It’s just like any other business deal.
Let’s also take into account the scenario where owners decide to ‘ride out’ the crunch time and don’t sell the business. The competitors will eventually catch up with the business in question. At that point in time, the owners will not receive lucrative buyout offers anymore.
To sum it up, it’s better to sell a profitable business rather than keeping it if it is not going anywhere with the growth.
2) It’s the Business Model of Serial Entrepreneurs
There is a reason why a group of entrepreneurs is called ‘serial entrepreneurs’. They come with a brilliant idea, turn up it in reality, make it a profitable avenue and then put it on the block. It is important to understand here that they don’t operate with this urgency because their ideas are not viable in the long run or there are certain liabilities lurking somewhere.
The first and foremost issue is that they are short on capital. Conventional lending comes with so many requirements that it can affect the original blueprint of a business idea. Secondly, raising capital is a time-consuming process and that too can affect the real prospects of a startup.
With such financial restraints, entrepreneurs find selling their start-ups as the best business decision. They are able to make the deal from a commanding position when they have the complete acquisition of the business. By fetching a good price for their budding and profitable startups, they are also able to execute their next business plans in a better manner.
Buying such a startup also entails benefits for the buyers. For instance, they can commence their journey from the complete debt-free position. Furthermore, they can get full ownership of the business idea and can tug it accordingly. Therefore, the transaction of a profitable start-up is a win-win outcome and there is nothing shady in it.
3) Hobbyist-Turned-Businessmen Often Sell Profitable Ventures
Many times a business is the product of a hobby. In some cases, the hobbyists responsible for these ventures become full-time businessmen and turn their passion into a hardcore commercial outing. While in other cases, they sell it to some other entity mostly the groups dealing in that niche on an exceedingly large scale.
This sort of business acquisition frequently happens with tech and online ventures where individuals sell their passion projects to large organizations at lucrative offers.
Example: Cricinfo was an online community of cricket fans founded in 1993. It started as a research project to provide a platform for ardent sports fans. However, its growth and popularity made it a serious online business prospect. Eventually, once the online community was then sold to different big companies. These days it is owned by ESPN.
Similarly, Deadline.com started out as a blog called Deadline Hollywood Daily. After getting a lot of online traction and eyeballs, the Mail Media Corporation purchased the blog from its single author in whopping $14 million.
In cases like these, the buyout offers are so lucrative that the people managing the venture can’t turn them down. You can browse this page to learn more about selling online and tech businesses.
4) A Lost Interest
No business can be run without dedication. It’s not a desk job where you have just to do bare minimum work for certain hours every day to survive. In short, a business can’t grow if its owners have lost the interest in it. From mental burnout to new lucrative opportunities, there are many instances where entrepreneurs might want to sell their venture.
Many owners also go on to sell their businesses because they need a large sum of money on an urgent basis. It gives buyers a unique opportunity to acquire a business that is making profits while growing.
All things considered, it’s perfectly okay and as per norms to run a running, profitable business.