15 Fears of Selling a Business & How to Manage Them
Selling a business can be intimidating but don’t let these fears stand your way.
Selling a business is one of the most difficult decisions an entrepreneur will ever make. But at the same time, in addition to being lucrative, it can be very liberating. Whatever your reasons may be, arriving at the decision to sell probably wasn’t easy and we applaud you for taking the next step in pursuing your dreams. After all of your years of hard work, you are finally ready to cash in on what you have built and that is something to be very proud of!
Business owners spend years, even decades, building and growing their business and the thought of passing it on to someone else is legitimate cause for concern. While there are many unknowns in the beginning stages of selling your business, rest assured that your fears are valid and normal but also manageable. Thousands of entrepreneurs have been in your shoes and selling is a natural step in the small business life cycle. The best way to combat anxiety during the selling process to stay aware of your concerns and address them head on. We have worked with hundreds of sellers during the M&A process and hope to quell some of your fears in this article. Below are the 15 most common fears of selling a business.
Loss of Purpose: We have worked with hundreds of sellers who have wondered aloud about what they will do after the sale of their business. The good news is that as an entrepreneur, you are naturally drawn to new projects and endeavors. We recommend having a couple ideas of how you want to spend your time after the sale mapped out prior to going forward with selling. It helps to have a path laid out that leads to your next chapter.
Loss of Social Status: For years, ‘small business owner’ has been part of your identity and it can be hard to imagine your life without your business. Your business has afforded you a certain lifestyle that comes with a special social status, and transitioning from that may be difficult at first. But selling a business doesn’t mean you are relinquishing your social status – you still have the experience of growing and selling a successful business and who knows, you may want to do it again!
Fear of the Unknown Future: Unknowns are scary but life after the sale of your business doesn’t have to be uncertain. Preparing for the sale and navigating the M&A process can be tedious but if you have been thinking about selling for a while, you have probably been thinking about what the next stage of your life looks like. Whether it be from a personal, professional or financial aspects, the best way to manage this fear is to plan ahead.
Disruption to the Business: Facilitating a sale is time consuming but will really only disrupt your business if you let it. Other than a confidentiality breach, businesses remain fairly unaffected during a sales transaction. We advise sellers to begin transferring important client and vendors relationships to key managers prior to selling, which should help with this fear.
Customer & Employee Care: This is probably one of the most common fears we hear about when a business owner is preparing to sell and it’s a legitimate concern. No business owners want to leave his employees and clients in the hands of someone who doesn’t care, which is why we stress the importance of finding a buyer who will be a good cultural fit for your business. Finding a buyer whose vision and morals align with yours will ensure security for your staff, vendors and customers alike.
Confidentiality: A confidentiality breach is every seller’s worst nightmare. There’s nothing worse than watching a deal die because your employees found out and are looking for other jobs or your competitors are taking advantage of the situation. The best way to prevent this is go to with a reputable business broker who has a strong reputation for maintaining confidentiality, which you should be able to learn more about by checking sites that allow clients to write reviews. Also, longevity and experience of the brokerage firm will help prevent this type of thing from happening.
Getting Taken Advantage of in the Sales Process: Similar to the point above, this can all be avoided by collaborating with an experienced, trusted business broker, attorney and accountant. Brokers can represent buyers and sellers during the M&A process but to avoid any questions into whose side the broker is truly on, we recommend seeking out sell-side representation. With a trusted advisor on your side, you are more likely to maximize the benefits of the deal and come out with a sales price you are pleased with.
Making Expensive Mistakes in the Process: Selling a business is a huge monetary transaction, which means certain mistakes can be incredibly costly. Generally, business owners make these mistakes by taking shortcuts when it comes to appraising the value of the business, equipment or inventory, and real estate. Our best advice in this department is to spend the extra money and get an experienced appraiser to calculate important financial figures so that you don’t end up getting less than what they are worth in the end.
Making a Bad Deal: The one thing every seller fears – making a deal they later regret. This does happen, but not if you build up a strong advisory team and do your research. Getting a professional business valuation will tell you exactly what your business is worth and give you the peace of mind that you are getting the cash you have earned. Having a trusted M&A advisor, attorney and CPA in your corner will also keep your best interests on the forefront of the deal.
Financial Security: Timing is everything when planning your exit strategy and one of the most important things to consider is a sustainable post-sale financial plan. You will receive a large payout after the sale closes, but it is still wise to have an actual plan of how you can stretch that money while maintaining your current lifestyle. We encourage business owners to take a break and enjoy some time off after selling. Just make sure you have enough cash to last and a new source of revenue mapped out for the future.
Buyer Stops Making Payments on Seller Financing (if applicable): While we discourage providing seller financing, we assist sellers in structuring seller financing if it makes sense, but it is important to be aware of the risks. While unlikely, it is possible for a buyer to default on payments and the best way to handle that is to go in with a good defense. If you decide to provide seller financing, make sure you require monthly financial statements from the business so that you can see how it’s performing. We also recommend including strong default/termination language in the agreement and potentially, depending on down payment, collateral in addition to the business.
Buyer Stops Paying Rent (if applicable): If you decide to include real estate in your deal, then this will not apply to you. If you decide to lease your building to the new buyer, you could potentially have some issues similar to seller financing. The best defense is a good offense, so be sure to include strong default and termination language in the lease agreement and then let tenant regulation laws lead you through the process.
Tax Liability: Tax liabilities are another common fear among business owners preparing to sell. Yes, taxes are inevitable but that doesn’t mean you cannot be proactive in reducing the tax burden. Building an advisory team that includes a CPA can help you minimize your tax burden and also ensure that the transaction is set up in such a way that taxes are minimized.
Fear that the Buyer will fail: After spending years building your business, it would be a shame to watch an unprepared buyer tear it all down. While that would be emotionally upsetting, you are really only at risk if you financed any of the deal or leased your property to the new owner. While we do assist sellers who provide some seller financing, your safest option is an all cash deal. If an all cash deal is out of the question for you, we recommend staying on board for a few months during the transition period and working with and training the new owner. This will help ensure that the business remains successful and that ultimately, you will get your money.
Getting ready to sell your largest asset is nerve-wracking but once you get to the other side, you’ll be very happy you did it. Selling a business is a milestone comparable to getting married or having children and while it’s challenging, it can be just as rewarding. Every business owner deserves to cash in on their hard work and take it easy for a while. The best piece of advice that we can give that will help alleviate these fears is to build a trusted advisory team that consists of a CPA, attorney and business broker. By doing so, you can be sure that you are protected from every angle and that three people with different perspectives are looking out for you. If you’ve been thinking about selling, the first step to making it happen is obtaining a confidential business valuation. Even if you aren’t ready to sell now, every business owner should know the value of their business. The preparation process can take 6-12 months so take the next step today and make a plan for your future and the future of your business.