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Selling vs. Closing Your Business: Which One is Better?

Owners usually shut down their businesses, but selling is ultimately the better choice.
benefits of selling vs closing business
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Every business owner will reach a point where they make a tough decision about their business.

This decision is tough regarding whether to close the business or sell it.

I’ve worked with many business owners who have faced this dilemma, and I understand the emotional and financial stakes involved.

Why owners don't have what it takes to make the decision

The decision to close a business can be a heart-wrenching one, particularly for those who have invested a great deal of time, money, and effort into building their business.

As an expert on helping businesses transition well to new ownership, I’ve seen firsthand the benefits of selling a business versus closing it.

And I am still waiting to hear the good reasons for the latter.

To begin selling your business can provide you with:

 

  • financial security
  • a sense of closure
  • opportunity to move on to new ventures or retire
  • among other benefits

I’ll be sharing my insights and experience on why selling a business makes more sense, and what business owners should consider before making this decision.

Financial Benefits of Selling a Business

One of the main benefits you can get when selling a business instead of closing it is the potential for financial gain.

Closing your business means shutting down operations and liquidating assets, which results in a lower return on investment.

However, selling your business to a qualified buyer can provide a much higher return on investment and potentially yield a profit.

Tax benefits

In addition to the probability of a return on investment, there are tax benefits to selling your business.

Especially when you come up with the option of seller financing.

For example, the sale of your business may qualify for certain tax deductions, such as those related to:

 

  • depreciation
  • amortization
  • capital gains

However, you should consult with a tax professional to understand the specific tax implications of selling your business.

Personal Benefits

Many owners and entrepreneurs see their businesses as their pride — while some take them as part of their personality, among other traits.

And for that reason, shutting down a business is the closest option possible because it’s probably for personal reasons.

However, if you truly weigh the vast differences between closing and selling your business, you’d rather choose the latter, and rightly so.

Here are some reasons why selling your business is your number one option should that time come:

  • It helps facilitate new career opportunities: Selling a business can provide a sense of closure and accomplishment. It can also help facilitate retirement or new career opportunities.
  • Continuation of your business: You can also ensure that the business you have built will continue to thrive under new ownership. This can be a source of pride and satisfaction, as you can look back on your achievements with a sense of accomplishment.
  • Capital for future endeavors: You can provide the capital you need to start a new business or pursue a new career path. Financial security and freedom are within your grasp to pursue your dreams

Ultimately, selling your business can provide you with a sense of closure and a renewed sense of purpose.

Think of it as an opportunity to pass on the legacy you have built to a new generation of entrepreneurs.

Why Closing Your Business is a Huge Mistake

In most cases, closing is a huge mistake because it can lead to these long-term effects:

 

  • Financial Loss: Deciding to close your business may incur significant financial losses, including outstanding debts, rent or lease payments, unpaid taxes, and penalties.
  • Reputation Damage: Customers, employees, and suppliers may perceive you as a failure, and it can be challenging to regain their trust again.
  • Loss of Income: It can result in a loss of income for everyone involved, which can be difficult to recover from
  • Missed Opportunities: You may miss out on potential opportunities, such as selling the business, merging with another company, or even pivoting to a new business idea
  • Emotional Toll: Closing a business can be emotionally taxing, and it can take a toll on the mental health of you and your employees

Some of these effects may take a toll on your overall well-being and may take you years to recover. However, it’s not entirely impossible to get back on track.

See also:

Timing Considerations

Now that you know selling is way better than just closing your business, you shouldn’t be making hasty decisions about it.

Think of this as similar to preparing a house for sale — you want to make it as appealing as possible to potential buyers.

After all, you have all the time and resources to increase its value and attract more interested buyers, ultimately leading to a better outcome for you as the seller.

Let’s delve into two reasons why your timing should be perfect and what to think before deciding to sell your business.

Market volatility

Just as the stock market is volatile and your shares may sell high or low, it goes the same for businesses.

This makes it even more critical for business owners like you to consider the timing when selling your business.

Generally, a period of growth in the industry can lead to a higher sale price, while a period of decline can lead to a lower sale price

One mistake can cost you thousands, if not tens of thousands, of your resources.

Prepare ahead of time

To do this, it’s recommended that you start at least two years in advance.

This allows enough time to address any issues and make necessary improvements.

Some of the steps you may need to take include but are not limited to:

 

  • addressing legal issues 
  • updating financial records 
  • improving profitability and predictability
  • reducing debts or liabilities
  • research market trends

In short, take your time and take the necessary steps to prepare your business for sale, and you can ensure a successful and profitable transaction.

Frequently Asked Questions

Why is selling a business better than closing?

Selling can provide financial profit from your hard work, whereas closing leaves potential value untapped.

What happens to my employees if I sell versus close?

Selling can allow your employees to keep their jobs under new ownership, while closing likely results in layoffs.

How does selling benefit me financially?

Selling allows you to capitalize on the equity of your business, potentially securing a significant lump sum or structured payments.

Can I protect my business's legacy by selling?

Yes, selling to a like-minded buyer can preserve and grow the brand you've built, while closing might erase it.

Is the process of selling more complicated than closing?

While selling can be more complex due to negotiations and legal processes, it's often more rewarding than the simpler process of closing.

What about the impact on the local economy?

Selling keeps your business running, contributing to local economy and community, whereas closing might have a negative impact.

Can I still have a role in the business if I sell?

Potentially, yes. Some buyers agree to let the previous owner stay involved in some capacity.

What happens to the physical assets when selling versus closing?

Selling often includes assets in the transaction, while closing may require liquidating assets separately, often at a lower value.

What happens to my business's debts if I sell rather than close?

When selling, debts can sometimes be transferred to the new owner or must be settled during the sale process, while closing often requires you to pay off all debts before ceasing operations.

Can selling my business offer me a form of retirement security?

Yes, the proceeds from selling your business can significantly contribute to your retirement fund, providing financial security, whereas closing doesn't offer this benefit.

Final Thoughts

Remember, it’s never too early to start planning for the future of your business.

Don’t make the mistake of closing your business without considering all of your options.

Moreover, don’t let the prospect of closing your business without exploring all the possibilities keep you up at night.

You owe it to yourself and your employees to explore every avenue before making such a monumental decision.

Not only could you secure a profitable outcome, but you could also ensure a smooth transition for your employees and customers.

At Tsetserra Growth Partners, we understand the complexities of selling a business.

Take the first step towards securing your business’s future today by reaching out to us.

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