Is it true that every business owner thinks about selling their company at some point? It could be. But selling a business is not something that all business owners actually end up doing. Perhaps they enjoy the work too much and can keep the passion going strong. Maybe they don’t trust anyone else with the business. Or maybe the business simply isn’t that impressive and no-one will buy it from them!
There are a lot of things you need to think about if you’re going to sell a business. If you’re even thinking about such a thing, I recommend you read this article. We’re going to take a look at some of the considerations that a lot of people forget about in this area.
Should you sell the company?
Do I really need to go on about how this is a “tough decision”? About how “selling your business is something you need to think hard about”? I very much doubt it. You haven’t arrived at this sort of thinking lightly, I’m sure. It’s certainly worth looking at some of the reasons that people do decide to sell their company.
Much of the time, it’s personal reasons, or a mix of professional and personal. If you’re retiring and thus stepping down anyway, then it’s tempting to sell the company. But is that the right way to go about it? Are you sure that handing the reigns to a current employee isn’t something you can do?
Retirement is perhaps one of the most common reasons. But there’s no denying that the sheer amount of profit someone can make is definitely a leading factor. For most people, the whole decision will be a mix of such factors. Take a look at the sale of indie game developer Mojang to Microsoft. (Mojang are the guys who made Minecraft!) Founder Markus Persson simply didn’t want to run a company that had such global significance and responsibility. But I’m sure that Microsoft’s offer of a whopping $2.5 billion definitely helped make the decision easier!
Of course, we shouldn’t assume that all company sales are a form of exit strategy. But the desire to leave a company in the hands of another does tend to stem from the desire for an exit strategy. If you’ve lost the passion, or need to focus on new things, then a company sale provides just that.
But what if you’re not looking for a total exit strategy? What if you’re just looking to share a big stake in the company? This can certainly help take a lot of professional pressure off of you. It should also result in a nice payday. But you may need to be extra careful about the terms of the sale. After all, you’re still looking to retain some of the ownership.
Taking time into consideration
Selling a company isn’t something that can happen a day after you make the decision to do so. It can be done fairly quickly, mind you. If you’re not too discerning about who you’re selling it to? And if you’re not too fussed about how many money you might make? Then you could probably go from decision to sale in a matter of weeks.
Am I going to recommend that course of action? Of course not. In fact, I’d say you should prepare for the sale at least a year in advance. Many business owners will be preparing a couple of years in advance. After all, you have a tremendous amount of work to do. You also need to keep yourself open to a variety of offers.
The law and your employees
Selling a company comes with a bunch of risks. Some of them are monetary. Some of them are ethical (more about that later). For your employees, however, the risk could be to their very job.
The transfer of ownership can be a stressful time for everyone in your company. After all, what the buyer wants to do with your company could be a complete mystery. (This is part of why you might want to be reviewing such plans as part of your terms.) In an effort to increase profits, the buyer might want to do some severe downsizing. Heck, how do you know the plan isn’t to simply close your business completely once the sale is over? It’s been known to happen in an effort to destroy competition.
You should be doing your employment law research when you decide to sell a company. In the United Kingdom, there are laws that help protect employees in such a situation. TUPE, or Transfer of Undertakings and Protection of Employment regulations, is in place, for example. You may want to work with a specialist in this area to ensure that you’re compliant with the law.
Concerning the ethics of your buyer
So who are you actually going to sell your company to? This is something you want to think about very carefully. It’s not a case of just waiting for the first person who will offer you a seven-figure sum. You need to think about the philosophy and ethics of your business.
Let’s say you’re a food business. You have a focus on ethics. Perhaps your company donates regularly to charities. Maybe you even help supply third world countries with food and water. Taking care of the planet and its people is part of your business philosophy and personality. It’s something your customers know and love about you. But let’s say Peter Brabeck-Letmathe of Nestlé comes knocking at your door and offers you $500m for the company. Sweet, right?
But Nestlé isn’t exactly loved by human rights and environmentalist groups. Their business practices in the third world are pretty awful, to say the least. If you want to sell the business, you need to consider what you want the business to look like in the future. Some may argue that it ceases to be any of your concern. But if you want your company to continue down an ethical and humanistic route, then you’ll need a buyer with similar views. Especially if much of your customer base buys from you because of your business ethics.