Pros and Cons of Selling Your Business
Given the turbulent financial climate, it’s not surprising to see more owners consider selling their business. Whether it’s to look after employees, cut losses, or for personal reasons there’s always a combination of pros and cons to consider- and I’m speaking from experience having sold my company to ORBA 5 years ago.
If you’re going to sell your business, first get it ready for due diligence. Your financials, bills and references should be in order and ideally make sure it’s profitable. Once your business is profitable and you don’t have a viable other 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’re 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 up-front for it, 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’re handing over your baby, for other serial entrepreneurs it may gift the flexibility they need to move on.
Lock in your profits.
If you’ve 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 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 always. I know that I was as worried about mine as anything else in the sale.
Cons of Selling Your Business
You’re losing a revenue stream.
If your next venture isn’t immediately profitable you might risk burning through all profit 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 uneasy about a sale and morale may be affected. It’s not unreasonable to expect to lose some employees in the transition. In fact, employee retention is one of the biggest pitfalls of some sales. It becomes even more essential to success if you’re 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’re probably going to want to find a different solution. Additionally, if you’re busy selling your business (which you should be- don’t simply leave it up to a broker) that’s 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’re selling to becomes very important. It’s not just a numbers game (i.e., who gives you the best price). It’s important to consider 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 you plan to sell to a private equity firm. These types of buyers dangle carrots if you stay on for 6 months, more if you stick around for a year, etc. But, you may find yourself hesitant to stick around for the year if the firm has not been easy to work with. That’s the risk of selling to a buyer that may not be the perfect fit but does offer attractive compensation. Look beyond price to the culture and the reputation of the acquiring company.
When do you know you made the right decision?
For me, it was when I had a term sheet in front of me and I had a better sleep than I’d had in weeks. But 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 due diligence and weigh your pros and cons.
Are you considering an exit? Our Cloud CFO services help define your growth metrics and quantify the pros and cons of selling your business. Get in touch today to plan your exit strategy.