In my previous lesson, what I was talking about is the 11 things to know before selling your business, and obviously, we went through all the things that you need to know because if you want to sell your business, there are things you need to consider three years in advance.
It’s my advice to you to get an evaluation to understand what you’re willing to take. We went over cash financing and we talked about how the buyers want profits, not potential. Get all your financials in order, your tax returns, get everything buttoned up real tight. The last three years of company numbers matter the most, so when you’re going to sell your business, you want to prepare for that. You want to start three years in advance. Look at your inventory, your capital equipment. Is there going to be some real estate involved? and ball with your client base, if it’s really good, they have good buying, a would be a great business you could possibly sell to a competitor or a company that can create synergy with it. Are there systems and a team in place? That’s just a kind of a real quick recap, but I want you to think about these things.
Consider Playing a Role After Selling Your Company
I thought about doing this with one of my companies, and my partners listen to this podcast, and they may not feel this way. But to be perfectly frank with them, I don’t think I could sell the business and completely walk away. I think I’d have to be involved at least for probably a three-year period to help with the marketing and the finances.
There are a few things that I bring to the table. I’m sure they’re listening to this, but I don’t think any of them are prepared to market it and create the constant, consistent client base that comes to our company, manage the finances, and all of that. So realistically, I know if I sold my company, and I’ve no desire to sell it, but I would probably need to stick around in some form or fashion. You need to ask yourself if you’re willing to do that because I do believe you’ll get a better price for your business.
So the first thing I want you to think about is what role would you consider playing in the transition of a business you’re selling. I’m just kind of piquing your curiosity here because if you think you’re going to sell and walk away, that doesn’t always happen.
Maybe that would happen if your competitor buys you, but I look at businesses that I was willing to purchase and I wanted to hire this person to work part-time for a few years. I was open to actually five years of this person helping during the transition. I know this person knew his client really well, understood the marketplace really well, and it seemed like he’d be easy to work with. I saw that as an advantage and I would have paid more for his business because of that. The fact that he would have been getting some type of salary naturally increased the value to him.
Let’s just say you’re making $100 a year, for a conversation’s sake, and I’m willing to give you $250k cash, but I’m willing to pay you $50k a year part-time, for five years. That’s starting to look like a pretty nice package.
So you need to decide what role you’re willing to play in a transition of the company or selling.
Are You Willing/Can You Afford to Be, a Creditor?
I could afford to in-house finance my company. The downside of that is the person buying it is very little at risk, and if it fails, it kind of leans on your lap, and that’s going to lead to the next point that I’m getting ready to talk about.
If you are willing to be a creditor, then you might have to stick around in a variety of roles.
One is as a coach. You just make yourself available, let’s say five hours a month, and that’s a part of the deal. I’m telling you, if you’re the one financing it, you better throw that in there because you’re going to want to be. And you’re also going to want to see the financials, so you don’t get the Titanic when it’s already getting ready to hit the iceberg, but that’s a subject for another day…
Consider Being a Consultant
They may want you as a consultant and they will pay you for a set amount of time or by the hour. You may have to take one of these positions, especially if you’re a creditor because if the company goes under, you’re getting ready to get back in on this business and it’s probably not going to be in as good a shape is when you gave it to them.
You’re either a coach, mentor, or a paid consultant.
Are You Going to Be the Landlord?
This changes things up. These are all the conditions that are important. I don’t know if I would sell the land underneath my business as the land is worth a good bit of change. It’s passive income for me. So you have to consider all these things, but if you’re going to sell it, you may really want to think about sticking around at least for five years to make sure that the transition is seamless and it’s strong.
You need to go through these things real quick.
- Are you willing to play a role in this transition? Start thinking about that before you put it up for sale.
- What is the role you’re willing to play?
- Are you willing to be a creditor? Can you afford to finance the company in a sale? If you’re going to be the creditor, you’re probably going to need to be a coach and a mentor, or you may want to consider being a paid consultant.
- Are you going to be a landlord?
These are just all the things to consider. This was a back-to-back lesson on how to sell your business and things you need to know about if you’re going to sell your business. I hope this helps.
