Did you ever think about selling your company when you started?
Probably not, right?
So, when should you be thinking about selling your company?
That is a tricky question to answer because there are so many reasons to sell. For example, I spoke with an individual last week who is looking at buying out his partner because of tariffs. Most of the individuals I speak with, sell because they are no longer interested in operating the business, they want to retire or they are fascinated with a new business concept. No matter what the reason is, the sale of your business represents an event that could either be viewed as advantageous or a nightmare.
As such, it is important to understand the potential advantages and disadvantages of selling your company.
- The average time to sell a business is between 6 to 9 months. Depending on the complexity of the transaction, the time frame may take longer. It is a misconception that there is only a buyer or a seller in a transaction. For instance, there could be brokers, business valuation specialists, lenders, etc. who participate in the transaction. Each party involved may not adhere to your time table.
- As mentioned above, one of the parties potentially involved in the transaction could be a lender. If the buyer is planning to finance the transaction through a small business loan like an SBA loan or some other debt instrument, you may face the possibility that the buyer does not qualify for a loan. Therefore, the transaction falls through the cracks. You could potentially finance part of the transaction, but that leaves some of your assets at risk. However, you might have to provide some seller financing in order for the buyer to qualify for the loan. Therefore, it is important to understand how the buyer plans to finance the transaction.
- If the buyer asks you to sign a non-compete agreement, will you sign? Most transactions are not entered into without a non-compete. A non-compete limits your ability to consult similar businesses or start a similar business. If you are retiring this does not pertain to you, but if you are at all interested in remaining in the field for which your company operates, sell part of your business and take a more passive role in the management of the company.
- As mention in the last bullet point above, you can potentially maintain involvement with the business as an advisor or an executive. Assist the buyer during the transition and take a more passive role in the company. You collect some capital now and still maintain equity ownership without the stress of managing a company. Sounds like an awesome deal.
- As mentioned in the following article, you might find that now is the most advantageous time to sell due to market conditions. You never know when the right time to sell is, but you want to consider the possibility of exiting at the highest possible price if possible. You will know when to sell, when you begin to attract the right buyers.
- Lastly, selling your business provides a liquidity event to you. You are relieved from duties and the stress of managing a company. Take time to relax. Take the capital received and diversify your investments into different asset classes. If you are interested in starting a new business, set aside part of the capital to invest in a new business. The possibilities are endless after a liquidity event.
The sell of your company is a monumental event. Think carefully and converse with those you trust and see as advisors.
Feel free to share any other advantages or disadvantages of selling a company!