What no one tells you about selling your small company

Want to take a new direction in life by selling your small business? Here’s what you need to know.

By Michelle van Schouwen

For many small business owners, the idea of selling the company – perhaps to help fund retirement, or just to move on to new endeavors – is a hope for the future. Before that future becomes the present, it’s good to know some of the truths you’ll seldom read in books and articles promising tips to allow you “sell your small company for more than it’s worth.”

Maybe you will do just that. However…

-When planning for your financial future, value your small company at zero. That’s right. This way, you will better recognize the importance of making and saving money as you go, rather than hoping for a big payday that may never come.

-While many small companies do sell for a considerable sum, your results are influenced by a variety of factors including economic cycles, nature of your business, trends in what types of companies buyers want, and more. While you manage some of these factors, others are largely or completely out of your control.

-As a small business owner, you are likely very involved in steering the path of your company, as well as in everyday operational detail, and potentially in customer management or sales. When it comes time to sell the business, buyers will look for a turnkey operation that not only does not require your services, but perhaps even an operation that will be somewhat easy for them to run without the type of expertise you have brought to the table. Some buyers are entering a new type of business by purchasing a company, and understandably, they hope your staff can make the transition smooth. If you are too essential, that poses a problem.

-It follows that if you are critical to the day-to-day management of your company, a buyer may insist upon an “earnout period” during which you continue to work. Now, not only will you have a boss, maybe for as long as several years, but you may earn less than ever before. If this doesn’t provide an incentive to have your business new-owner-friendly and largely able to operate without you, what will?

-When I first contemplated selling my own company, I came face-to-face with the need to decide what I wanted most from the sale. The most obvious answer might be “top dollar,” but after a period of reflection, I realized that the preservation of a hard-earned company reputation, a continued avenue for excellent service for our clients and good employment opportunities for the staff were also major factors. Consider your own needs and desires before you begin the sales process.

-You will likely need a broker. It is very difficult to develop all the expertise and perspective needed to sell your company on your own. Even more, it is hard to make inquiries and open the door to prospects without a third party to support your privacy and interests. Interview business brokers carefully to find a match for your needs.

-It’s tempting to try to unload your company when times are tough and you are tired of the stress, but much better to sell when the money has been flowing in for at least three years. Just when you are having fun…this is the best time to market and sell your company.

-It often takes time to sell a business, and you may entertain several offers before you find the right fit. (Really, the process is no better than dating!)

-The good news: You often CAN sell a small business successfully, including a service business. You’ll need to make sure you have a good management team (other than yourself), good revenues, an easy-to-continue business model, and something that makes it more tempting for a buyer to purchase your firm rather than develop their own from scratch.

-When the process is complete, even if you have met many of your goals, you will be surprised by your mixed feelings (especially if you built the company from the ground up) but hopefully you will be pleased overall, and enjoy a newfound sense of freedom.

What’s next for you? If you want to develop a new, Act 2, company, check out my recent post Creating your Act 2 company. Whatever you do after you’ve sold your company, I wish you fun and success.

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Michelle van Schouwen has started an “Act 2” career as principal of Q5 Analytics, providing advocacy and communications for climate change mitigation. See Q5analytics.org.

For the past 32 years, Michelle has been president of van Schouwen Associates, LLC (vSA), a B2B marketing company. In October 2017, van Schouwen Associates was acquired by Six-Point Creative Works, Inc. of Springfield, MA. Michelle supports the Six-Point team in an advisory capacity.

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