One of the most important questions every business owner like you should ask themselves in advance of a sale is whether they plan on staying or leaving post-transaction.
Why? Because it will help you determine which offer is the best fit and will influence a variety of other aspects of the sale process.
Keep in mind that leaving post-transaction can actually involve staying for up to six months afterwards to help with the transition, but it means you have communicated to the buyer that you plan to leave.
Often, I see sellers take a “wait and see” attitude about their post-sale plans, partially due to price, earn-outs, rollover equity, and, specifically, cash at close. But honestly, I am not convinced that is the best approach. Knowing what you want to do post-sale will force answers to the following questions that must be resolved in advance.
7 Questions That Will Influence Your Post-Sale Plans
1. How much money do you absolutely need at close (not counting on an earn-out later)? This forces you to look at exactly what you will receive and when. If you have to take an earn-out, then staying around may be a requirement to make sure you can achieve those numbers (assuming you don’t have a second-in-command to do it for you).
2. If you are rolling equity, will you be able to keep the stock if you are not an employee a few months post-close? Not every PE firm will accept passive partners, so you need to know that in advance of signing an LOI.
3. If you know for sure you are leaving, you can then add back your entire salary, payroll taxes, and benefits you paid to your normalizations. This can easily add at least $500K to $1M to your purchase price. This assumes, of course, that you have a second-in-command to take over.
4. Have you groomed your second-in-command to take over once you leave? If not, a seller will be very uncomfortable if you leave immediately. Or they may look for someone externally to fill your role, in which case they will add a negative adjustment to the normalizations for that new person’s salary and benefits.
5. Knowing if you are leaving will make the non-compete language easier to write. If you are retiring completely, it is simple. If you plan on doing something like running a peer group or anything else in your space, you will need to write that into the purchase agreement non-compete and have the buyer approve this in advance. Some are more lenient than others depending upon your reach and personal brand identity.
6. Do you have a personal plan post-sale in terms of what you will now do with all of your extra time? This seems to be a hard one for most CEOs. Not having a plan keeps CEOs around longer than expected and possibly wanted by the buyer.
7. If you were to stay, what exactly would your role be? Will you still manage your team? Most CEO’s assume they will, but that is usually not the case. I have seen many past CEOs find themselves in a miserable management role, especially with larger MSP rollups, where they are really not managing anyone as they all report now to the larger entity.
The answers to these questions have a big impact on how you position the company in the marketplace, and you need to be open and honest with your advisor. Often, CEOs will still be weighing their options when they first meet with an advisor. Not having a clear direction of what life might look like post-sale complicates this decision, which is why I spend a lot of time with my clients to really get them to understand what life may look like if they stay or if they go.
You Don’t Have to Figure It All Out on Your Own – Take Our Quiz
Most owners, especially founders, struggle with an identity outside of their work. The longer you have owned your business, the more likely your personal identity and self-worth will become defined by your status as the owner.
If you are struggling with what you will do in retirement because all your friends and social life are wrapped around your business in one way or another, you will need to sort this out.
This quiz is the first step to understanding how personally ready you might be to take this next very important step. I hope it provides you with additional clarity for this vital question: Will you stay, or will you go?
What is your biggest question or concern about selling your company? Email me at linda@rosebizinc.com and let me know!
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