Selling your business is not easy. It will involve a lot of hard work, take a considerable amount of time, and require reaching out to a lot of people for help. Before you get too far down the path, you need to spend time thinking about what is really most important to YOU.
What are the specific pieces that will ensure you find the right fit and have no regrets in the future? Taking time to think through the following decisions early on will help you keep perspective, and guide you as you move through the process to sell your business.
Why Do You Want to Sell Your Business?
Make sure to document your true reason for selling.
- Is it because you have the opportunity to move on to something else and would no longer have time for this business?
- Do you wish to spend more time with your family and friends or just be out of the office with time for yourself?
- Have you been approached by a buyer, with an offer that will help you and your company make large strides it couldn’t achieve on its own?
- Is it primarily about realizing financial benefits that you’ve earned for getting the business to this point and want to be able to enjoy?
There is no answer that is right for everyone, but depending on your reason for selling, there may be large implications for what type of buyers you want to seek and what your role will be post-sale. Keeping these reasons in mind when evaluating buyers will help you keep perspective and make the best decision for you and your business.
Your Role After Selling Your Business
Some owners have a strong preference regarding their future role, or lack thereof, so now is the time to think about what your preferences are. Determine the perfect scenario, but also consider what you would and would not be willing to do if asked by a buyer.
Exiting the Business Post-Sale
If your desire is to exit the business post sale, then you will want to be sure that the transaction you enter into is with a party and structure that allows you to leave the business in your desired time frame. This also means that either the buyer, someone else from your team, or someone the buyer brings in, will likely have to take over your role and duties.
If someone needs to take over your role you will likely be asked to provide some level of training, or assist with transition, for a period of time sufficient for that person to get up to speed without having a negative impact on the business.
In addition, if you have key responsibilities and relationships, a buyer may want to tie up a portion of the purchase price in some form of contingent payment to ensure the business can perform at a similar pace without you involved. Without that, the business may not be worth as much to a buyer.
Likewise, it’s also important to remember that there’s a lot of work involved in prepping your business for sale — and doing what you can to increase its value to interested buyers.
Remaining with the Business Post-Sale
If your intention is to remain with the firm post-sale, whether that be in the same role or a different role, that needs to be communicated up front to buyers and factored into the discussions. Your role and compensation desires will not only impact the price, but also the type of buyer that may have an interest in the business.
In this scenario, you will need to think through how decisions will be made once a new buyer is involved in the business and discuss those thoughts with potential buyers. It is often hard for previous owners to transition out of the lead role after spending so much time leading day to day operations.
We often see owners who remain involved in the business want to continue making key decisions. But if you aren’t the majority owner anymore, you might have to start taking orders instead of giving them.
It is important you think through your role post-sale as well as any compensation you desire. You may have great value remaining with the business, and a strong desire to do so, but buyers will want to have these discussions up front to help determine their interest and structure the deal.
Other Considerations When Selling a Business
Over the years that I’ve been working with business owners, I find there are many motivations that influence the decision of who they sell to. Many of them have multiple motivations but prioritize them much differently.
Here are some of the more common priorities that have surfaced. As you read through them, consider which, if any, may impact your decision enough to accept a lower price from a potential buyer. Then rank them in order of importance for you. This will be helpful for you to refer back to later in the process.
This isn’t just about getting the highest price — it also relates to whether or not you are willing to accept a portion of the purchase price in some form of contingent payment. Doing so may result in a higher total price, but may also delay, and potentially risk you ever getting that portion of money.
Some owners are adamant that they want 100% of the cash at closing. But they need to realize, for that to happen, it will likely result in a lower total price. (Want to learn more? This is covered in detail in our Ultimate Guide to Selling a Business).
A number of owners place strong importance on the future of their employees when selling a business. Particularly, they want to ensure they will remain employed in a good work environment under new ownership. After all, these are the people who interact with customers, work behind the scenes and have helped shape the culture of the company.
Some owners and leaders intentionally focused on creating a specific culture at their firm that they and others enjoy and also helps them attract and retain employees. For others it happens unintentionally and was strongly influenced by the example you set as the leader, and further developed by the types of people who were hired over the years.
Culture could have been formed by your strong or weak work ethic, positive or negative attitude, open communication and social efforts, birthday and holiday celebrations, team building events, casual Fridays, or even as simple as noticeably having a smile on your face when walking through the office. Some firms have been recognized as a “Top Place to Work” because of the culture that’s been created.
For owners that realize they have a strong and beneficial culture within their firm, I often see them have a strong desire to ensure that any new ownership will align with this culture, even potentially enhance it, so that it can remain a strength for the company in the future.
Clients & Customers
I’ve heard a number of owners talk about how important their clients are to them and how the future service they receive is vitally important to them. Some have shared how the business wouldn’t have even been able to make it through the first year without a few early customers who gave them a chance and put their trust in them early on.
Some companies have been passed down for generations, or have other deep reasons why the name of the company is part of the legacy that is so important for them to ensure lives on. Often times the name represents more than just letters on the sign, it’s a name, a meaning, a brand, or image that has deep meaning to an owner.
Different types of buyers may have different plans for the future of your business or even their own business that your company will become a part of, resulting in the company name dying completely. Others may value the name and want it to live on, whether they already have their own company or not. If the name has intrinsic value for you, it may be important for you to understand what the buyer’s intentions are for future use of the name.
I continue to be impressed by the larger meaning that some owners communicate their business has for them based on the impact that it has on society or other people.
Some owners had the knowledge and passion to create something with positive and meaningful impact for the greater good of humanity, or a specific portion of the population. To deviate from this purpose would eliminate the entire reason for starting the business.
If you were to sell to a buyer who didn’t share that same passion, or worse, didn’t even want to continue pursuit of that original mission, it may never reach the level of impact that you desired which may leave you with major regret.
Many of the considerations mentioned above, and many others not mentioned, may come from a buyer who is willing to pay a higher price, but may not accommodate your preferences. How much money is that worth to you? Or will that completely prevent you from moving forward with that buyer?
There is no one right answer, but having thought about this ahead of time with a clear mind (not under stress of the process and intense negotiations) will help guide you through all of the external noise and stress when it comes time to evaluate offers and decide how to move forward.
I encourage you to take some time with this, discuss it with your spouse, family, friends, and any business partners or associates you might trust. They can oftentimes help put this in perspective because they know you well and can provide an unbiased opinion. It will also help ensure you have no regrets after all is said and done because you were well prepared. It may mean that you accepted a slightly lower overall price but will help ensure you are completely comfortable that you made the right decision for years down the road.
Once you’ve taken the necessary time to think about the answers, write them down, and refer back to them throughout the process. It’s quite possible that you learn some things throughout the process which alter your opinion — and that’s ok — but remember the thought you put into these answers and why you chose them.
Selling a business can be difficult, time-consuming, and frustrating. Before you take the plunge, prepare yourself by reading our 70+ page ebook, The Ultimate Guide on Selling Your Business. Still have questions about selling your business? You can contact us here.