Selling Your Business: Sellers Beware

Selling Your Business: Do Your Homework

This topic I am going into today, I have seen first-hand just how awful the results can be when Selling Your Business to Corporate America.  In an effort to keep my source anonymous I am not going to say what the previous company was, or who came in to buy the company, but I can give you the back story on the company and how selling the business came to be.  First of all this was a business that was started in a basement nearly 15 years ago from nothing and 12 years later was a company doing $20M per year in sales.  Were they a big player in the game, no they weren’t, but their service and pricing was a definite pain for their larger competition who couldn’t offer half of what these guys did. Growing a company from 2 employees in a suburban basement to a 50+ person operation gives you a sense of pride, but oh how quickly that pride disappeared upon sale of the company.

Selling Your Business: Do Your Homework

After carefully surveying the industry they were in, they knew their opportunities to grow much larger than they were without an influx of cash was slim and none.  They had done a great job getting to where they were but would need the cash and/or the support of a major player in the game in order to attract the type of clients needed to push them over the hump and onto the quest for $100M in annual sales.  After committing to needing that influx of cash and getting some cash to the owners it was decided that Selling Your Business was the right move for everyone involved.

Under the terms of the agreement owners would obtain a quarterly term note, an employment contract, and additional yearly earn-outs if net income surpassed certain amounts.  With the thought of getting cash now and being profitable with the potential for a lot more cash was extremely enticing and the deal was sealed.  This would be the last day that there would be any happiness over this deal…….

Selling Your Business: Once The Ink Is Dry
Selling Your Business: Once The Ink Is Dry

Almost immediately after Selling Your Business, you will barely have enough time for the ink on the deal to dry and you will find out exactly what you are getting yourself into.  When you are involved with Selling Your Business you need to get in writing and ensure yourself just how much oversight the purchasing company will have over you.  In this case, the purchasing company almost immediately started racking up expenses on more managers and even put someone in place to oversee the owners who had run the company for 12 years.

Now under the direction of someone with no industry experience, running an efficient office was ground to a halt.  With the new company adding on tons of bureaucratic red tape and exponential expenses, the opportunity for a sustained income to pre-selling levels was gone.  Any estimations that were made from a profitability standpoint were worthless and the company was now making a lot less money than before.  Without the ability to make their own decisions the old ownership committee had to now be resigned to this fate and that the big corporate player had gotten the best of them for Selling Your Business.

For the next 2+ years and to its current state today, nothing has changed and the old owners have been put in such a hole that a thought for any additional payouts have all but disappeared and the realization has set in that they were set-up to fail and had sold their $20M company for a little over $1M.  With the employment contract coming to an end, a decision needs to be made either to stick with the company in a strict employee sense, or venture out into something else.  Herein lies yet another problem and that is there is a strong No-Compete clause in their contracts so any potential jobs from others in the industry will have to wait years for them to take shape.  Talk about feeling helpless, you have sold your company, made minimal money, and now can’t get another job in the only industry you know for the foreseeable future.

Selling Your Business: My Advice

Let this be a lesson in why Selling Your Business isn’t all that it is cracked up to be.  If I can give my advice to fellow business owners being tasked with the same issue it would be to get a fair valuation for your company and take a lump-sum payout and walk away.  Don’t leave potential earnings to chance because if there is a way for things to NOT go your way, believe me, they will.  Corporations buy up small companies for a reason and it is NOT to do you any favors. Selling Your Business should be a great time in your life, so get what your company is worth and walk-away!

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