Planning your transition now will help you exit on your own terms.
Many business owners who plan to sell their company within the next 5 years believe they will immediately retire when the time comes. However, that is often not the case. Buyers of main-street businesses often prefer companies that include the prior owner for a period of time in order to aid in the transition. As such, the post-sale landscape can be an opportunity for owners to maintain a vital role within the company, ensuring a smoother transition, and commanding a higher selling price.
According to industry reports, businesses where owners stay on for a transition period see an average increase in profitability of up to 20% within the first year post-sale. This is often attributed to the founder's continued guidance, which is highly valued by buyers for maintaining the company's trajectory. Negotiating this post-sale involvement might include incentives tied to performance, aligning the owner's gain with the company's success. Studies suggest that such arrangements result in a 15% higher likelihood of meeting or exceeding growth targets in the subsequent two years.
Considering the potential benefits for the company, post-sale arrangements can also personally benefit the owner in multiple ways:
1. Financial Gain: Staying involved for a defined period post-sale often comes with financial incentives or profit-sharing arrangements. This can lead to additional income or bonuses tied to the company's performance, aligning the owner's financial gain with the company's success.
2. Maximizing Sale Value: Post-sale involvement can be a strategic move to maximize the value of the sale itself. Buyers often perceive continued founder involvement as a stabilizing factor for the company, potentially increasing the sale price or improving the terms of the deal.
3. Long-Term Profitability: The owner's continued guidance and expertise during the transition phase can significantly impact the company's performance, leading to increased profitability in the long term. Improved financial performance can also potentially lead to future consulting or advisory opportunities.
4. Personal Fulfillment and Legacy: For many founders, their business is more than just a financial asset—it’s their passion and a significant part of their legacy. Staying involved allows them to continue contributing to something they’ve built and nurtured, providing a sense of purpose and fulfillment.
5. Maintaining Industry Connections: Post-sale involvement enables the owner to maintain connections within the industry. These relationships can be valuable for future ventures, collaborations, or career opportunities.
6. Smooth Transition to New Ventures: By staying involved during the transition, owners can ensure the business is in good hands, allowing them to comfortably transition to new ventures or pursuits without abrupt detachment from the company they’ve built.
A good example of leveraging opporunity is the case of a recent software company sale where the founder, Jane, chose to stay on board for a year after selling her business. During this transition period, Jane’s involvement led to a 25% increase in product innovation and a 30% growth in market reach. This contributed significantly to the company's overall profitability, showcasing how post-sale engagement can be highly lucrative.
Jane's continued presence ensured a seamless transfer of knowledge to the new leadership. Employee morale remained high, with a 35% lower turnover rate among key team members. Clients and investors expressed confidence in the company's future, attributing it to Jane's insights into the business' history, market nuances, and customer relationships. This example underscores how founder involvement after a sale not only drives financial success but also fosters stability, innovation, and trust.
Selling a business doesn’t have to mean bidding farewell entirely. Post-sale involvement provides a win-win situation for both the founder, and the new leadership. It mitigates risks during the transition phase, addresses unforeseen challenges, and sets the stage for a promising future. The owner's willingness to stick around for a while is also a fantastic way to provide assurances to a potential buyer.
By harnessing the founder’s expertise, the company can navigate this crucial period with confidence, ensuring a strong foundation for its next chapter of success. Contact Sperry Commercial - Flint Brokers & Associates to discuss your transition plan today.