5 Things I Wish I Knew Before I Sold My Business
Before you make a move you’ll regret, read this.
Owning or running a business you don’t want anymore is more stressful than it sounds.
Sure, businesses aren’t people, but they feel like living, breathing responsibilities in our lives.
Most people can’t empathize with what it feels like to have an obligation to this thing that isn’t technically alive, but nonetheless has a very real pulse to the people, such as your customers, employees, and your reputation that all depend on it.
Because so many people depend on it, it makes it harder to focus on you and your needs. You might hear yourself asking:
“How is this business going to fit in with what I want to do next?”
“Is there a way I can get rid of it without causing too much disruption?”
“How am I going to get rid of this thing?”
If this is you, keep reading.
I know to the outside world, you’re the boss so everyone thinks you should feel lucky that they show up for you.
It hasn’t occurred to them that things have changed and these days …eh…they should feel lucky you show up for them!
Don’t worry, I’ll keep that between us. ;)
The truth is, you like the idea of getting out and moving on to the next thing, you just want to cause as little disruption as possible while doing it.
But each solution you think of involves putting people out of their jobs or leaving your long-time customers and suppliers high and dry.
So you feel stuck.
You know you’re stuck when you’re asking questions like:
How Would I Replace My Income?
How Do I Find A Buyer Who Won’t Ruin Everything?
What About My Team? Will They Be Okay?
How Do I Even Know If Anyone Is Going To Want To Buy This?
These questions are stressful.
I know because I was in your situation.
Before I sold my first company I wasn’t sure how I was going to make a smooth exit and I was terrified of making a wrong decision.
We’re talking about people’s lives here (including yours)... as well as lots of money.
You’re not crazy. This can turn into a disaster if you don’t know what you’re doing.
Many people don’t and it causes damages that can take years to clean up. Years you’d probably rather be spending relaxing or doing something you love.
So before you make any moves, I hope this article can work as a helpful resource so you avoid any pitfalls!
It’s been 8 years since I built and sold my first company and I’m grateful to share since then I’ve gone from being a newbie at selling a business to now helping dozens of transitioning business owners like yourself sell their business with as little bumps as possible so they can move on to the next chapter in their life with peace of mind.
It’s safe to say that I’ve seen a lot, so before you get your hands dirty…
Here are the top 5 things I wish I knew before I sold my first business.
#1 I wish I knew how important it is to sell it to someone who really cares about it.
I’m going to be honest with you, I got lucky! The buyer of my first company was a person who really understood the vision of the company and cared about keeping that intact after I was gone.
Were there things that looked or even felt a bit different after I left? Sure, but that’s to be expected. You can’t expect everything to be 100% the same as when you were there but if the new owner can keep at least 70% of it the same then consider that a huge, HUGE success.
With that being said, I have seen some horror stories and I wish more business owners knew how much who they sell their business to impacts their customers, staff and legacy forever.
Sometimes business owners sell to a buyer just because they offer more money or hand a business off without fully understanding plans or the values of the new owner.
It’s a sad sight.
Your customers are left dumbfounded. Your employees feel betrayed and a few bad yelp reviews later, that beautiful vacation you have planned doesn’t match with the ugly guilt on your conscience.
If the thought of your business becoming unrecognizable the second you turn your back is a fear of yours then keep reading.
The key to avoid this is to know what to expect from different kinds of buyers. We’re not all equal and we’re not all in it for the same thing.
For example, most big investment banks and private equity firms only have the capacity to interpret your business as a few pieces of paper.
Whoever is put in charge is usually from a finance background and most likely has no experience building or running a business at all.
This doesn't make them bad people, it’s just the nature of their job to be more focused on the numbers and less on the people.
Most Private Equity:
Interprets your business as a few sheets of paper
Usually has zero experience in running a business
Tends to put profits over people
Will beef up sales first and ask questions later
Keeps you in the dark about what they plan to do with your business after you hand over the keys
This means when it comes to quality assurance they’ll probably try bloating sales first and clean up any damages later.
Depending on what industry you’re in or what your unique customers expect, this can be a disaster for the long-term health of the business and ultimately spoil your years of hard work.
Strategic Buyers
Strategic buyers are called strategic buyers for a reason. They’re looking to buy your company to fit into their overall strategy for a pre-existing consortium you might know nothing about. Again, this doesn’t make them bad people, it’s just the type of buyer they are.
You can expect them to:
Change the name and brand of your business
Fire a lot of your staff and replace them with their staff (new accountant, lawyer, consultants etc.)
Roll your business up into a pre-existing franchise
If these things don’t affect how you feel about selling your business then one of those options might work for you. Plenty of business owners sell to private equity firms and strategic buyers all the time. The only issue is, they don’t always know what they’re signing up for and how it has a long term effect on their customers, employees and legacy overall.
However, if you’re looking for a more sympathetic, high-quality acquirer who actually cares about your wishes after you sell, you can spot them out based on the following attributes:
A buyer who cares about your business:
They have some level of experience in entrepreneurship (not just finance).
They care about the deal being structured in a way that compliments your future financial goals.
They don’t mind spending time on the phone with you to answer your questions.
They’ll want to keep your employees, customers, suppliers and your businesses overall local community impact.
They will do their best to maintain your businesses integrity.
Since these sympathetic buyers really care about structuring a deal that compliments your personal financial goals, you should have a clear idea of how the deal could provide your life the most possible value.
Do you want cash flow after you sell?
Do you want to put some of that money away for your kids or grandkids? Travel?
Do you have a large expense like medical bills? A Wedding?
Do you just want to make sure you want to retire in a way that’s comfortable for you?
Do your best to communicate these goals to this buyer so they can best serve you. You don’t have to get too personal but providing enough detail in a way that can help serve you will ensure you walk away with a deal you’re satisfied with.
# 2 I wish I kept these 3 financial documents on me at all times.
Let’s be honest, entrepreneurs are good at making money, not organizing it.
In fact, it’s a misconception that entrepreneurs are “good with numbers”.
We’re usually good at sales or managing people which is psychological, not mathematical.
Ask any entrepreneur and they’ll tell you, there’s no simple equation for dealing with employees!
So that means when it’s time to talk numbers, they wince.
In fact, the most common response a business owner has to the question “What was your bottom line?” is “I don’t know”.
So if this is you, consider yourself normal.
The good news is it’s okay! No matter how uneasy you feel about your bookkeeping, if you know the business is making money then even the most unorganized books can get cleaned up and work in your favor! Yes! Even yours!
And by the way if you need help with your books, we can help. Contact us here.
I wish I knew how much easier having access to these three specific financial statements would make it for me to sell my business.
Think of them as wings you can use to fly free when you feel like it.
If you don’t have these specific statements well then, I hate to say it but you might as well be handcuffed to your business forever.
Take it from me, it’s better to get them in order sooner than later.
Prepare these statements in one neat folder on your computer and update them accordingly:
P&L statements for the past 3 years (more than 3 years will be even better)
Balance sheet (assets, liabilities and shareholder’s equity)
Recent Cash Flow Statement (divided by what’s being spent on operations, investments and financing)
These financials have the power to:
Properly plan how to replace your income and plan for retirement when you sell
Make your businesses sellable
Show you how much money each employee is making for the business and if they’re worth keeping on
If you ever want to sell your business or grow with acquisitions, these are the first things a potential buyer or investor is going to ask for to begin their due diligence process so it’s worth it to have them handy.
Not having these prepared wasted so much time and impacted my ability to plan my financial goals. Again, if you need help getting these in order, me and my team offers free consultations here.
# 3 I wish I knew that business brokers can kill a deal
Once you start looking into selling your business, you might come across business brokers who make some strong claims about how they can sell your business for a high price and fast!
But, keep an eye out.
I’m not saying this always happens but most of the time, the entrepreneurs we speak with who’ve worked with business brokers were told their business was worth 2 even 3 times more than what it’s actually worth.
This can be devastating for entrepreneurs who have been planning or making real lifestyle changes and even promises to family and loved ones that they won’t be able to keep under the misguided advice.
In fact, the inflated valuations a lot of business brokers tote in front of business owners typically slow down the deal by months, even years (that’s considering it sells at all).
The reality is only 1 out of 11 businesses actually sell after being on brokers sites for a year, and it’s not like odds are that great after that either.
Chances only go up as little as 10% for the second year. Do you really have that kind of time?
The truth is, if your business doesn’t sell it’s not the end of the world to them because they have a rolodex of other businesses they can replace you with.
In fact, my team has dealt with brokers who are so lackadaisical about our attempt to contact them, they got away with ignoring calls and messages from us for months without the business owner knowing!
Business brokers are just like any other brokers in the sense that their livelihood is dependent on their commission.
They usually have zero operational business experience. What happens to you and your business after the sale is none of their business.
Don’t get me wrong, I’m not saying involving brokers are completely useless when selling a business, but if you involve them too early, you could potentially stifle and extend the sale of your business for months or even never, when you don’t have to!
Before you involve a broker, make sure you spent 6-12 months doing the following thoroughly:
Tell your friends and family you are looking for a serious buyer.
Consider asking one of your key employees if they’re interested in owning the company. If they need help with financing, you can have them reach out to us here.
Book a call with a serious buyer to see if they’re the right fit and ask questions. Most serious buyers should be willing to be reasonably generous with their time and resources. I’m always available to speak with business owners with these things.
Make a post on Linkedin or social media about how your business is looking for a new owner.
Go to local industry events and network with people, being sure to tell them your business is looking for new owners.
# 4 I really wish I knew what an SOP was.
Standard operations process (or SOPs) is just a fancy term for documented processes that make sure your services and products are delivered consistently every time to a standard of your liking.
I wish I knew about them before because the last thing you want after you sell your business is still have to spend 3-6 months, or even an entire year, training and replacing staff because they’re clinging on to you for dear life and looking to you for answers about everything.
In fact, even if you don’t sell your business right away, you’ll be shocked at how much SOPs can transform the productivity of your business regardless.
Most of the time business owners can’t walk away from their businesses simply because the information needed to run their business (up to their standard) is in their head and not written down!
It’s okay. We all do it. It’s not just you. This is why SOPs are a God send!
The reason why having an SOP is so important when trying to make your business succeed even after you're gone is because it makes it possible for you to:
Easily to sell your business without compromising the quality of the systems your business uses to run.
Help you not worry as much about your employees because it’ll allow them to successfully manage quality standard operations without you.
Not stress about training any new hires because you’ll already have a system you can depend on to maintain company integrity and smooth transitions.
Keep in mind SOPs don’t guarantee superior performance each and every time. However, they do ensure you have a structured quality system in place that improves productivity, reduces costs, qualifies employees and creates a motivating company culture all without you needing to be there.
The right SOP is not only a gift to you but it’s also truly a gift to the staff and customers who depend on you and your quality of service because it serves all of them without you being there.
Plus, you’ll learn a lot about yourself in the process because you’ll see exactly how your ideas clash with other people’s understanding.
The reality is, people can’t see what’s inside your head and sometimes as entrepreneurs, we don’t realize how true that is until we write it all out.
Draft a small SOP on your phone today and start testing it now. Use it to see how long your staff can go without you.
When the process breaks and they have to call you, identify what caused it and patch it with some new information to prevent it happening again. Keep doing that until eventually they can ride the bike without training wheels!
# 5 I wish I knew more about tax exposure after a sale.
Replacing your cash flow after a sale is a real concern for many business owners. How can you make sure that transition happens smoothly?
And what are the real financial and legal limitations when it comes to selling your business?
The last thing you want is to get 30%, 40% or even 50% of your sale profits eaten up by taxes before you even get to touch it!
I wish I knew more about the savvy ways to protect my after-sale profits through tax brackets so I could properly protect my cash and not be exposed to any hefty tax liabilities I wasn’t aware of.
It can get complex because each circumstance is different but here are the key pieces of information you should know:
Selling an S-corp or LLC is very possible but you might run into some red tape. For example, an S-corp is technically a personal entity which means when you die, it “dies”. This can cause some complications when wealth planning for trusts, wills, etc.
By forming or transferring your business into a C-Corp you could sell it for up to $10M tax free. As of the publication of this article, Section 1202, a C-corp behaves as a tax shelter under certain qualifications such as owning it for at least 5 years.
It is possible to do a 1031 exchange on your business as well as real estate. A lot of people don’t know this but you can use the value of a business to purchase another “like-kind” entity. Unlike a traditional 1031 exchange the Form 8824 must be completed with the IRS, but it’s very possible for you to protect your assets from unnecessary tax exposure this way.
As you can see, there’s quite a few pitfalls even the most careful people could fall into when selling a business but I’m hoping after reading this, you feel more confident about what things to look out for.
If you or anyone you know is interested in selling their business we offer free consultations to transitioning business owners who want to sell successfully and with peace of mind. Feel free to contact us here.
Good luck on your journey!