When is a good time to sell a business?
More and more readers of Oman Daily Observer continue to write me asking for guidance regarding their business. I am certainly honoured for being seen as a sort of a mentor figure by many new friends, and at the same time I am truly thankful for the platform that this newspaper is offering.
Doing business is not easy and I was pleased to be a mentor to the SME under Riyada during my time in Oman.
The Government of Oman is doing a spectacular job at supporting new entrepreneurs. As such, it is not a mystery why so many new businessmen and businesswomen in Oman are reaching out to me.
Today I would like to address the ideal “endgame” of a small and medium enterprise. Theoretically, a company is meant to produce an endless profit, so talking about an ideal final goal might be counter intuitive for some readers.
However, if we look at the equation from the point of view of an entrepreneur, there is not only one possible scenario.
In fact, the idea of an endless profit works perfectly fine in the mind of most people, but given the uncertainties that the economy have periodically got us accustomed to, the alternative scenario could be a buy-out to sell the company.
Let us imagine that a business is rendering RO 100,000 in profits every year. This amount over 5 years could sum up to half a million. But there is just one giant question mark. Would this be a constant?
The answer is — of course — no. The market could expand or collapse. The 100 thousand rial this year might as well be 300 thousand next year or 50... or zero. Think for example of cruise ships and airlines a month before Covid-19. All projections were cancelled.
Similarly, a small and medium enterprise need to constantly re-assess values over market in order to remain aligned with reality.
Back to the buy-out concept. If we stick to the narrative of RO 100,000 a year for 5 years, would you accept to sell the company all together for 500 thousand rial today?
This a question of risk and expectations. Some of the readers, having a solid business that is blooming and growing might answer with a decisive no.
Others, with a struggling enterprise facing market uncertainty might answer with a conclusive yes.
There is not a right or wrong answer, but it all depends — in my opinion — on the answer to one single dilemma: what would you do with the buy-out money. If the seller has been running the company for decades, a buy-out is a perfect opportunity to retire, especially when the children show no interest in continuing the business.
On the other hand, if the company is relatively new and the entrepreneur is at the beginning of a long career, the buy-out money could be a great capital to start a new venture. It is hard to imagine a third option other than selling one’s business out of pressure.
For example, an entrepreneur with an aggravating health issue, or a dispute in the family, or simply stress. In all these cases, selling the business could be the best option. The worst one? Of course, closing the business without a buyer.
THE GOVERNMENT OF OMAN IS DOING A SPECTACULAR JOB AT SUPPORTING NEW ENTREPRENEURS. AS SUCH, IT IS NOT A MYSTERY WHY SO MANY NEW BUSINESSMEN AND BUSINESSWOMEN IN OMAN ARE REACHING OUT TO ME