I Want to Sell My Business, but What If Word Gets Out?

Mike Ginsberg

Have you ever daydreamed about selling your business for a pile of cash and leaving the daily grind behind for the good life of traveling the world, improving your golf game and spending quality time with family? Of course you have. You probably thought about it as recently as this morning.

If you own your business you undoubtedly think about the day you sell it. Perhaps you’re part of that small group of business owners who have actually gone beyond daydreaming and started preparing your business for sale. Good for you. Or maybe you thought about an outright sale but decided not to go through with it for personal reasons such as family succession. If you fall into one of these 2 camps you can stop reading today’s blog or forward it to a friend who is considering a sale. If you’re like the majority of business owners who find your mind wandering about a sale but stop yourself from going any further because you’re concerned about word getting out prematurely then read on…this blog is written for you.

Second to pricing, the biggest concern that an owner of a service business expresses about the sale of their business is regarding word getting out prematurely through the “rumor mill”. What if my clients find out that I am selling? If my employees find out about the sale then they will leave me. My competitors will use it against me to steal my clients or staff. We all know the concerns and they are all valid. After all, the main value drivers of a service business are its client base and its ability to generate cash flow. If word of a sale is leaked, clients or staff may leave causing a reduction of value. Let’s address some of the most hyped concerns that owners raise about word getting out when contemplating the sale of a service business and some ways to minimize the risk of confidentiality breach.

Concern #1 – I will lose my main clients if word gets out about a sell. All types of businesses sell. Small businesses sell. Large businesses sell. Struggling businesses sell. Performing businesses sell. Service businesses sell and clients are well aware that owners of service businesses sell. It is an anticipated part of a business’s lifecycle. No owner has yet been able to take their business to the grave with them. Some may have prepared better than others for the eventuality of the owner’s passing, but that’s not the focus of this blog. Once the anticipated buyer has been identified then the seller should consider approaching key clients to explain what’s taking place and how it will benefit them as important clients of the business. Perhaps the selling business will be merged into a larger operation with greater financial strength, advanced technological capabilities, or a deeper suite of service offerings than the selling company currently provides. The client may voice concerns which you can address through conversation, but they will appreciate your transparency and may actually welcome the sale. Ultimately retention of key clients will be based on performance post sale and not the sale itself.

Concern #2 – My staff will run to exit if I sell. Perhaps it is true that some members of your team may want to leave and the notion of a sale gives them the excuse to do so. Most likely, these employees had one foot out the door already regardless of your decision to sell the business. It is likely these employees are headaches of yours, either overpaid for their services or not performing well within your organization. A sale gives you or the buyer the ammunition to do the right thing for the business by dropping dead weight. Those staff members that are performing well should welcome a sale. They may see an increase in their job responsibilities, increased benefits or a way to earn more compensation. I suggest that you identify your key staff members and engage them in the sale. If done correctly, this will help provide for a smooth sale process and transition of the business to new ownership.

Concern #3 – What will I do if I sell? An owner contemplating a sale first needs to ask him/herself some critical questions, and answer them truthfully, before answering the question “What will I do if I sell?” Ask yourself:

What role am I playing currently in my business? If you’re not playing a critical role then perhaps you should leave after a sale. However, if you have valuable relationships with key clients or staff members then perhaps you can enter into a lucrative consulting role post sale to generate new sales. Most buyers will embrace your involvement post sale if you’re performing a valuable role for the business today. Some non-industry buyers might even require it.
Do I really want to remain post sale? Some owners can’t be involved with the business post sale because they are a hands-on operator and can’t stomach someone else making decisions they once made themselves. Think long and hard about the type of owner you are and the type of staff member you may have to become if you were to stick around the business post sale. Talk to your significant other and trusted advisors about this important topic. The answer to this question may help you make decide if you remain post sale.
Can I afford to leave post sale? Many businesses have suffered severely since the start of the Great Recession in 2008. Perhaps lack of performance necessitates a sale of your business to a larger company that is performing better. If you planned for a sale financially then you may no longer need the income that the business has provided you with over the years that you owned it. If that’s the case then refer back to questions 1 and 2 above as you decide about your role post sale. However if you need to generate a salary post-closing then you will need to position for this with the buyer early in the sale process.

Please let me know if you would like to schedule a time to confidentially discuss your concerns and how to address them.