Selling your business can be very tough.

There are questions to be answered, documentation that needs to be provided, brokers and attorneys involved – it can become very complicated very fast. In addition, all of your hard work is about to be exchanged for a substantial amount of someone else’s money, so emotions are likely to run high.

If you have never sold a business before, knowing what you’re in for can be very helpful in preparing yourself for this very stressful time. This is Part 2 of a series of articles that will address the elements of selling a business you may not have considered, but will shortly be confronted with. Part 2? They’re not your employees anymore…

Let’s start with a story. A woman who is in the process of selling her large restaurant employs both her daughter-in-law and a long-time employee as her managers. They both collect a substantial salary, but this salary and position are based solely on the loyalty of these two employees and not on their abilities or work ethic. In fact, the majority of the responsibilities that should be covered by these managers fall to the owner on a regular basis.

During the negotiation process, the seller emphasizes the importance of these two employees to the buyer in an effort to keep them employed post-sale, continually touting them as key employees when clearly they are not. She does the same thing to these two staff members, ensuring them that the new buyer knows how important they are to the business and assures them that they will be able to keep their jobs after the business changes hands. The seller also knows that the new owner will not play a key role in the day-to-day operations of the restaurant and will be relying on the management in place to keep the restaurant running.

In this transaction, the both parties have agreed to seller financing, meaning the seller will only get paid for her business if the doors stay open long enough for the buyer to pay back the note. In the weeks and months following closing, the business takes an extreme financial hit, as quality control goes out the window and regular responsibilities go unfulfilled. The buyer is forced to default on the note, so the seller ends up taking the restaurant back. Not only did she lose the potential payments from the buyer, the restaurant and it’s reputation are in ruin. She now has the choice to invest more capital and try to rebuild what has been lost to sell again, or close the doors for good.

Don’t be this seller! The seller of this business should have let reality prevail.

Many small businesses are family affairs, where an owner has stacked their staff with children, in-laws, and other extended members of their family. In other cases, a small business owner may have long-term employees that now feel like loyal members of the family. When the time comes to hand over the business to a new buyer, many sellers will try very hard to force the new owner to keep those staff members that the seller considers, for whatever reason, to be key employees. This thought is not driven by good business sense, but rather by a sense of loyalty to those employees.

In our example above, the seller did a big disservice to the buyer and to her business by pressing the new buyer to keep her managers in place. As a seller, you have to realize that the way you have run your business will probably be very different from the way a new buyer should run it in the future. The key employees in your business structure might be overpaid dead weight on the other side of the closing table.

Our seller also did her employees a disservice by assuring them that their jobs were safe. The truth of the matter is a new owner can and will employ (and fire) whomever they see fit.

If you are selling your business, you need to take a good look at the staff you have in place with an objective eye. Do they really bring as much to the business as you’ve been telling yourself they do, or are you driven by loyalty to keep them around? If the latter is true, don’t make the mistake of building up those employees to a new owner. Instead, let the buyer make those staffing decisions on their own. Your employees will either rise to the challenge of the new ownership, or they won’t stay employed. In reality, once the business is sold it is completely out of your hands.

Are you thinking of selling your business, but are concerned about the future of your most loyal employees? Please feel free to leave us a question or comment here, and we will be happy to address any concerns you may have.

Want to read Part 1? Click here for The Dark Side Of Selling: What Business Sellers Need To Be Ready For, Part 1: It’s Not Your Baby Anymore

Want to read Part 3? Click here for The Dark Side Of Selling: What Business Sellers Need To Be Ready For, Part 3: Expect Some Push-Back

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Selling your business can be very tough.

There are questions to be answered, documentation that needs to be provided, brokers and attorneys involved – it can become very complicated very fast. In addition, all of your hard work is about to be exchanged for a substantial amount of someone else’s money, so emotions are likely to run high.

If you have never sold a business before, knowing what you’re in for can be very helpful in preparing yourself for this very stressful time. This is Part 1 of a series of articles that will address the elements of selling a business you may not have considered, but will shortly be confronted with. Part 1? It’s not your baby anymore…

As business owners, we can totally understand the the feeling that your business is your life. You have lived and breathed this business, working day and night to make it into what it is today.

If your business is such a major part of who you are, you may feel like it would be impossible for the business to run without you. While this feeling has worked to motivate you in the past, when the time comes to sell your business to someone else, it can be a big problem.

The truth of the matter is, the business can and will run with someone else at the helm. Take some time before you get to the closing table to think about why you are selling and about what life will be like post-sale. These new goals will help to keep you focused on the goal at hand – getting your business sold.

Why do you need to stay focused in this process? It can be very easy get off track and for your deal to fall apart if you don’t. Here’s an example:

The seller of a small family-run bakery is in the middle of due diligence with a serious buyer. In every interaction with the buyer and the buyer’s broker, the seller obsessively describes the origin of the recipes, the design concept he used to create the decor, the thought process behind the layout of the menu, etc. These parts of the business really matter to him, and he wants his attention to detail and passion to continue under the new ownership. The buyer, on the other hand, only wants facts. She only wants to see the numbers and the contracts. For this buyer, the bakery is a location that works but is in need of an updated menu and decor. The seller becomes very offended by the buyer’s lack of consideration for the aesthetic parts of the business, and although they are just days away from closing, the seller suddenly decides he’s had enough. If she can’t truly understand the business the way he wants her to, then she can’t have it. The end result? He can’t sell, so he gives the business to his son. His son, who wants to pursue a different path, ends up closing the bakery for good four months into ownership.

Don’t be this seller! The owner in this example had a chance to get a return on all of the investment of time, energy and money he put into his business. Instead he ended up with a total loss.

What you need to understand as a seller is that the new person, your buyer, is not going to care about your emotional attachment to your business. All they are going to want to know is the the bottom line. If you are mentally prepared for this part of selling your business, then it won’t become a major issue in the middle of your sale.

Are you a seller who thinks your emotional attachment to your business might be an issue? Do you worry about the legacy of you business more than you think about what your goals are post-sale? Please feel free to leave us a comment or question, and we would be happy to help you address your concerns.

Want to read Part 2? Click here for The Dark Side Of Selling: What Business Sellers Need To Be Ready For, Part 2: They’re Not Your Employees Anymore

Want to read Part 3? Click here for The Dark Side Of Selling: What Business Sellers Need To Be Ready For, Part 3: Expect Some Push-Back

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

No Comments »

It can be truly agonizing when you face the decision of whether or not to sell your business, but the agony of this question can be compounded if your decision to sell comes at the same time as a major growth decision.

What if your business is at a turning point where growth has to happen? Should you invest the capital in a business you are seriously considering selling, or should you pass the buck to the new owner? Here are a few things to consider when trying to make this choice:

Are you growing the business and investing the capital to service already existing customers with a model you have already used and proven?

An example here might help. Say you have a small dress shop, and some of the dresses you make in your in-house manufacturing facility are sold at local boutiques. One of the boutiques has recently expanded the amount of your dresses that they will carry due to high demand, and they would like to have you fill much larger orders for them on a regular basis. This increase in orders would mean that you have to expand the manufacturing part of your business substantially, likely by opening a second location.

In this situation, it is probably best to spend the capital and invest in the new manufacturing, then sell the business later. You are going to be serving an already existing customer (the boutique) using and already proven model (your dresses in high demand).

Are your ideas for growth dependent on new customer acquisition and retention using a new and unproven model?

Here’s another example to illustrate this point. This time you own a bakery, and since your sales have been a bit stagnant you have decided that you want to open a second small location in a newly revitalized part of the city.

In this situation, it would likely be best to sell the bakery as-is and let the new owner try out the second location. The new bakery location will require a new customer base and a new (and unproven) location.

Do the answers to these questions apply to every case? No, absolutely not. Businesses are very complex, and as such, every business is different in its needs for the future. Have a talk with an experienced and qualified business broker about whether or not the market will respond to your future investment in the business. It may be better to sell now if the market won’t give you back what you’ve invested.

Are you a seller stuck in the “to sell or not to sell” game? Do you have questions about whether or not your future plans will pay off in a sale? Please feel free to leave us a question or comment here, and we will be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

No Comments »