What Role Will You Be Willing To Play Post-Sale?
A key element for an exiting successfully on your own terms and conditions is realizing the role(s) that you’re willing to play post-sale or transfer.
John sold to a strategic buyer and an earn-out with John working as an employee for 3 years as part of the deal. He had not planned in a way to avoid this, and after 2 years decided to forfeit the balance of his payout and leave because he was finding it too difficult to work for the new management.
Due to the small size of her business, Susan’s only option for a third-party sale was someone interested in “buying a job”. Susan did the deal and was forced to self-finance the deal and be a lender. After three years into the deal, the new owner was no longer able to make loan payments due to the weak performance of the business.
Bob planned for and was able to sell a majority stake in his business (that had very strong revenue, cash flow, and growth potential) to a financial buyer. In creating and implementing his comprehensive exit plan, Bob had decided he would be willing to be a partner in order to have a chance at “a second bite of the apple” years later.
In completing her sale to a key employee group, Sarah was willing to continue involvement as a consultant and her agreement is for 3 years.
It’s important to understand these roles and decide which of them you’d be willing to assume when selling or transferring your business. Each role is common to transactions of small businesses and at times unavoidable. However, with the right long-term planning, you might be able to avoid a role or roles you’d rather not play. For example, if you have built a business with significant revenue, a proven next-level management team, and a credible plan for future growth, you may avoid an earn-out. So, understand what roles you would be willing to play, and get started today planning for your exit because the more time you have the greater chance you will be in control when you leave.