The Pros and Cons of Selling Your Business

Selling your business may feel like a daunting prospect, and doing so successfully takes substantial time and energy.  But selling your business can also offer a host of benefits.  Being such a large decision, you’re likely already weighing the pros and cons.  Here’s a list of factors we’d suggest you consider in that list.

 

Pros

Receive a Lump Sum of Cash

Obviously, one of the main advantages of selling your business is the cash payment it can generate.  Not all deals include cash of course, and many that do are spread out in installments over time.  Even so, you have the opportunity to structure the deal in a way that aligns with you & your family’s needs.  Which can provide enough cushion set you up for retirement or the next professional endeavor.

 

It Can Take Your Business to the Next Level

Most business owners have sincere interest in improving their organization for the benefit of their employees, customers, and other stakeholders.  Selling can be a huge opportunity to improve strategically.  Merging with or selling to another company with products, services, or expertise that your company doesn’t have can dramatically improve the customer experience.  While it’s often bittersweet walking away from a business you’ve built, a sale can be positioned strategically, to the benefit of employees & customers.

 

Diversification

Most business owners have the vast majority of their net worth tied up in the value of their company.  This might seem reasonable, since they know their own company far better than other investments they may consider.  It presents a huge amount of unnecessary risk as well.  As business owners age a potential sale can offer important portfolio diversification, which sometimes makes or breaks a comfortable retirement.

 

Move On to Other Professional Pursuits

Selling your business can free you up to pursue other professional interests or dreams. Whether you’re looking to start a new venture, contribute to the non-profit sector, or move onto an executive role in another company, selling your business allows you to focus on taking these next steps in your career. Additionally, if you have children who are interested in continuing the family business, selling it can help ensure that the family legacy is secured and will continue for years to come.  Plus, there’s no reason you can’t stay involved in the company if you want to, or perhaps retain a portion of the equity.

 

 

Cons

Pay Taxes on Profits

Selling a business, depending on its size and value, can come with substantial tax liabilities. The money you receive from the sale of a business is typically split into taxable income and taxable capital gains. The exact amount will depend on whether the transaction is an asset or a stock sale (the vast majority are asset sales) and other specific terms and variables. A sound tax adviser is imperative here, as they can help you negotiate to minimize tax impact. While the cash you might receive from a sale could be life changing, rest assured that the tax authorities will come for their fair share.

 

It’ll Take Time & Energy

Business sales do not occur overnight.  It may take years just to work your company into a shape that’s sellable in the first place.  Once you find a buyer you’ll need to go through general negotiations, due diligence, and other terms to get to a successful close.  All this takes time and energy you should be prepared to devote before starting the process.

 

You Could Lose Control Over Your Business

There are many ways to sell a business, but in most cases you’ll be giving up day to day control.  Even if you stay on after close (either indefinitely or to assist in the transition) your influence and decision making power will change.  New ownership may even decide to change its mission, vision, or direction entirely, which can be challenging for sellers to accept.  Think twice if this sounds uncomfortable.

 

Restrictive Deal Covenants

While selling your business can open up new professional doors, it can also come with restrictive covenants.  Buyers generally do not want you competing against them after a sale.  An example would be if you sold your furniture company to a large corporation, the corporation wouldn’t want you starting a new furniture company next door.  They obviously don’t want you poaching their customers either.  Non-compete and/or non-solicitation agreements are commonplace here depending on state law.  Be sure you understand the restrictions a buyer will want to impose if you’re using a sale as a pivot point in your career, as well as whether they’re enforceable.  Like a tax expert, legal advice on this matter is imperative.