Should You Remain Involved With Your Company After Selling?
The decision to sell your business is often a hard one. Small business owners and entrepreneurs have usually worked hard to build up a viable brand. Handing it off to another party and walking away is a huge change — regardless of whether it’s voluntary or involuntary.
If you’ve reached this point, the next decision you’ll have to consider is how much you would like to remain involved (or not) with your business after selling it. What will your buyers want? How might you stay involved? And what are the pros and cons of different methods to remain a part of the company? Here’s what every owner should consider.
Why Remain Involved in Operations?
There are generally a few main reasons you might stay on after selling. The most common is the request of the buyer. Taking on an established business isn’t the same as driving a car off the lot. The business has many unique functions and needs. The buyer doesn’t know its operation and systems, and they’re unfamiliar to employees and clients. Easing the transition period and learning the ropes is more successful if the buyer has the assistance of the seller.
The other primary reason to stay on is when you want to give the business its best chance of success. If you worked hard over years to grow the company, it often means more to you than just a paycheck. Owners may offer their services or even negotiate that into the contract either to feel better about passing it on or to protect their own reputation.
How Can You Stay Involved?
Each buyer and seller must decide the means through which the previous owner will stay involved. If you want to stay on for a relatively short period of time, you might opt to become an employee of the new company. This allows you to be on the ground regularly but also to hand off management to others. Similarly, you might contract for consultation work. This method requires the least commitment on both sides.
You might join the board of directors instead. This position allows you to retain some management control and be in a better position to offer advice to the new owner. However, they take on the day-to-day management.
Finally, an owner may retain some shares, or a stake, in the business. If you sell less than 50% of the shares, you retain control over the big decisions. You can then reduce your stake over time as others gain experience managing things. However, if you sell more than 50% of all shares, you remain a minority owner with input but less control.
When Should You Avoid Involvement in the Company?
Staying on after a sale is not the right choice for everyone. Staying on as a consultant or employee can be problematic because the new owners have their own style, goals, and methods. Working for another party at what used to be your business is often difficult for a departing owner.
A partial sale of stock, partnership interest, or other stakes also means you get less money upfront. If new ownership lowers the value of the business, you may end up having left money on the table when you do sell the remaining part of your interest.
Where Can You Learn More?
Do you want to remain involved in your business? Would it be better for you to walk away cleanly? Get help making the right call by meeting with Sun Mergers & Acquisitions. We’ll work with you to find the best path to a satisfying succession outcome. Call today to make an appointment.