The Pros and Cons of Selling Your Business
Given the turbulent financial climate, it is not surprising to see more owners consider selling their businesses. Whether it is to look after employees, cut losses or for personal reasons, there is always a combination of pros and cons to consider. And I am speaking from experience, having sold my company to ORBA five years ago.
If you are going to sell your business, first work on your business. Get it ready for due diligence. Your financials, bills and references should be in order, and ideally, make sure it is profitable. Once your business is profitable and you do not have a viable reason, why might you want to sell it? One word: Risk.
Whatever your reason, here is a list of some pros and cons that may help guide your decision to sell your business:
Pros of Selling Your Business
Cut Your Losses
Market your story and growth narrative to sell it before it’s even profitable. If you are not yet profitable, one pro to selling your business would be to sell to someone qualified to grow it and turn it around. While you may not get a lot of money upfront, you may eventually see the return and still make a decent profit on the earn-out if your company’s model is truly sellable.
Free Up Time and Money for Other Ventures
By selling your company you inevitably free up time and, ultimately, money to pursue other ventures. While for some it may feel like you are handing over your baby, for other serial entrepreneurs, it may give them the flexibility they need to move on.
Lock in Your Profits
If you have streamlined your business to run well without you, it becomes a more attractive sale for buyers. You can sell for a profit and find financial freedom by making money on your sale.
Safeguard Your Employees and Team
Surprisingly — and although it is not immediate — one pro to selling your business is the stability it may create for your team. If your market is more volatile, selling your business might, in fact, create opportunities for your team. Throughout the process, from planning to exit, your employees are likely top-of-mind. I know that I was as worried about mine as much as anything else during the sale.
Cons of Selling Your Business
You are Losing a Revenue Stream
If your next venture is not immediately profitable, you might risk burning through the profits from the sale. You will have to determine what is the right investment approach for you financially and personally.
You Risk Creating Turmoil for Your Employees
While there are pros for your employees in a sale (e.g., stability, better benefits, new incentives), your team may be very uneasy about a sale, and morale can be affected. It is not unreasonable to expect to lose some employees in the transition. In fact, employee retention is one of the biggest pitfalls of some sales and becomes even more essential to success if you are a tech company entering an acquihire. Even with an all-star roster, the interview process some buyers require can unravel things all on its own.
It Takes Longer Than You Think
Every sale – without exception – takes longer than you think. This is not a short-term fix. Most of the time it takes months of work to agree on terms. So if you are thinking this is your “out” from a COVID-riddled economy, you are probably going to want to find a different solution. Additionally, if you are busy selling your business (which you should be; do not simply leave it up to a broker) then you are taking time away from your other business development responsibilities.
Giving Up Control
For those of you who fall into the “this is my baby” category from above, a con of selling your business is undoubtedly the loss of control. This is where the “who” you are selling to becomes very important. It is not just a numbers game (i.e., who gives you the best price), but also who will be the best partner during the transition and following the sale. Even when you sell, owners often get baked into the deal for the transition, so you want the buyer to be a good fit. For example, say that you plan to sell to a private equity firm. These types of buyers dangle carrots if you stay on for six months, even more if you stick around for a year, but you may find yourself hesitant to stick around for the year if the firm has not been easy to work with. That is the risk you take in selling to a buyer who may not be the perfect fit but offers attractive compensation. Look beyond price to the culture and the reputation of the acquiring company.
When Do You Know That You Made the Right Decision?
For me, it was when I had a term sheet in front of me and I slept better than I had in weeks. Ultimately, it will be different for every founder.
Some entrepreneurs enter into their strategic planning with an exit-strategy in-hand, while others are handed an opportunity that is hard to pass up. Regardless of how you arrived at the prospect of selling your business, it pays (literally) to do your due diligence and weigh your pros and cons.
Are you considering an exit? Our Cloud CFO Services Group can help steer you towards profitability, define your growth metrics, and quantify the pros and cons to selling your business. Get in touch today to plan your exit strategy.
For more information, contact Chris Arndt at firstname.lastname@example.org or at 312.494.7014. Visit ORBA.com to learn more about our Cloud CFO Services.
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