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5 Reasons You Don’t Want To Sell Your Firm

May 28, 2015 by JoshPatrick Leave a Comment

no_to_sellingI recently wrote about a strategy I call the wind down.  This is where you don’t sell your firm.  Instead of selling you give away the bottom 80% of your clients and you go from working full time to part time.

I’ve gotten a few calls and mostly they went like this……”OK Patrick, I really think I should sell my firm.  After all, how am I going to monetize all of the work I’ve done?”

Let’s take a look at this thought process:

If you have a relatively small firm, getting 40% down isn’t selling.

You own a small firm.  You might even have ten people working with you.  At the same time your firm’s clients really depend on you.  In fact, you’ve been told several times by clients that when you retire your clients don’t know what they’re going to do.

When you go to sell you’re going to find that buyers aren’t as dumb as you think.  During due diligence they’re going to figure out that without you there isn’t much of a business.  And they’re going to only pay you about 40% down with the rest of the money being contingent on whether they hold your clients.

All you’ve done here is transfer the risk of holding clients from you to your buyers.  You don’t have any control over how the buyer behaves and if they lose your clients, you’re the one who’s going to pay.

You’ve tried to groom a successor and it just hasn’t worked.

If you’ve tried to sell your business and didn’t like the outcome I described above you might have gone to plan B…..have someone internally take over the business.

The problem with the internal transfer is these buyers never have any money and most of the time a bank won’t finance them.  On top of that you’ve tried to find the right person and you just don’t seem to be able to do so.

You’re getting older and you want to slow down.  You really don’t think you’re going to be able to find someone that will be a good successor from your employee group.  On top of this, you really don’t want to finance this deal anyhow.

Why take all of the risk of selling?

In both cases you’re going to play bank for a significant part of the sale…..probably 60% or more.  In both cases if the new owners don’t treat your clients well your clients will leave and you’ll be the one paying the bill.

Let’s face it; you’re taking a big risk selling your business to an outsider and your taking a reasonable risk selling to an employee.  On top of that, you’re going to lose all of that great cash flow your firm provides.  I hope you don’t think that’s a great option.

Doesn’t working one day a week and making the same money sound attractive?

If you pursue a wind down and only keep about twenty percent of your best clients you’ve automatically made your business simple.  You’re not going to have to work very hard.  You’ll be getting rid of the majority of your staff and you’ll be able to work with the clients keep from anywhere.

In most cases you’ll find that you’ll make at least as much money if not more by shrinking the size of your firm.  This is what I call getting you cake and eating it too.

How much golf can you play?

This is my last question for you.  You’re going to have to find something to do in retirement.  Most people I know really miss their industry once they stop working.  I want you to ask yourself this questions, “what am I really going to do after I leave my business?”  I bet that if you’re honest with yourself you’ll want to stay involved with the clients you like and the industry friends you have.

Your choice is really pretty simple…..if you haven’t built a firm that is really sellable you might want to think about a different option…..the wind down.

If you’re interested in learning more about this strategy and want to have a conversation with me, click on the button below and choose a date and time that works for you.

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Filed Under: Business Exit Planning, For business advisors, For business owners Tagged With: risk in selling a business, succession strategy, wind down strategy

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