For many business owners, one of the most important decisions that they will make is selling their company. A business is often the fruit of many years of hard work, establishing relationships and facing numerous challenges. Leaving something behind that has been a significant part of a person’s or a family’s life for many years can be extremely difficult.
However, selling a business does not necessarily mean that the seller will need to completely leave it behind. Depending on how the terms of a sale are negotiated, a business owner may continue to play an important role in a company even after it is sold. This can be positive for business buyers as well as sellers.
Selling a business does not necessarily mean that a seller will need to completely leave his or her business behind.
Why Selling a Business Can Be Hard
There are often four reasons why selling a business can be difficult for business owners.
Concern for Firm Employees: Businesses are important sources of material wellbeing for firm employees. Business owners are often concerned that, if the business is sold, these employees will lose their jobs.
Concern for Clients: Many business owners have close commercial and personal relationships with clients. These clients depend on a business’ products and services. Business owners are often concerned that, if the business is sold, the quality of products and services sold will decline. This will negatively affect clients who may have a relationship with a business for many years.
Concern about Economic Alternatives: Businesses represent a financial return for business owners based on their investment in the company. Particularly for successful businesses that provide excellent returns, business owners are often concerned that they will not be able to invest the proceeds from the sale of a company in a new business activity that will provide the same level of financial returns.
Concern About Life After the Firm: For owners a business represents an activity that occupies the vast majority of their time. This activity often involves many professional and personal relationships with co-workers, clients and service providers. It can be very difficult to accept that from one day to the next. A life that was filled with meaningful commercial relationships, obligations and timetables will be replaced with a large professional vacuum.
Company Sale and Value Loss
Sometimes, the clean break of an owner from a business will not be in the best interests of the business or the buyer.
There are two key reasons for this. The first reason is that the incoming buyer may not be as familiar with the business or local market. Thus a simple handoff may result in a significant drop in business efficiency, revenue generating power and risk management capability.
Second, an abrupt sale may cause the defection of valuable employees or clients. This can lead to great losses of business value.
Creative Win-Win Company Sale Options
One option to consider is a business model sale which allows the owner to remain significantly involved in it after it is sold.
Three ways in which a business owner can remain involved in a business after it is sold is through a:
The Share Sell Down: after they sell is, instead of selling the whole company at once, they provide a structured sale of shares over an agreed period of time. This approach can allow the business owner to remain significantly involved in the business. It also allows the new buyer the time to acquire necessary business know-how and step into the business operating relationship. Thus, there will not be operating disruptions or lost business value. In some share sell down structures, the owner may retain a minority interest in the business. He or she continues to have an economic interest in the business indefinitely into the future.
Directorship: even if a business owner sells its entire stake in a business, the business owner may participate as a non-voting director in the company. This role could be combined with working on a firm project where the business owner has particular expertise. This is something that could create economic benefits that could be shared by the parties.
Outside Advisor: the business owner advises the firm on different matters relevant to the business depending on the nature of the business and its owner’s strengths and interests.
Conclusion
Selling a company is a major professional as well as personal decision for many company owners. In addition to challenges for owners, the complete sale of a company can also create significant issues for incoming buyers. These issues may lead to buyers offering lower purchase prices for a company due to concerns that business value may drop after a business owner leaves or that business forecasts made based on the strengths of the outgoing owner that served as the basis for a company valuation will not be able to be met.
One solution is to use a company sale structure that allows owners to remain involved after it sells. While the feasibility of this approach depends on what the company purchase and sale motivations are, it can often smooth the sale process position for both parties.
This article was written by Darin Bifani. If you would like to know more about how to sell your company, take a look at Value, worth, and company sale strategy.
The photo for this article was taken by Ahmed Saffu on Unsplash.
