Sell My Company, Keep My Job…Sounds Like a Great Idea!

Over the past few years I have been involved in, or at least aware of, several cases where owners of privately held businesses sold their company and agreed to stay on working for the new owner in one capacity or another.  Recently it occurred to me that this kind of arrangement seldom works for very long.

I thought that it might be instructive to consider:  1) Why this is the case?  and, 2) What are the implications of this to owners considering such a deal?

WHY?

This is the easy one.  Entrepreneurs usually make lousy employees.  They have been used to running their own show with little oversight or questioning…they have no one to report to and can act on their gut feelings without explaining their thought process to anyone.  The transition to having their power checked or questioned is a tough one. Exhibit A:  President Donald Trump!

The job that the selling owner has after the sale is never the same as it was before the sale.  They used to run a company.  Now the might be in charge of a division, or maybe they are sales manager, or even worse, an Executive VP in charge of nothing.  The job satisfaction they knew is gone.

Since they are no longer the primary decision maker, the former owner must stand by and watch decisions made by others, frequently by people with less knowledge of the business.  This can be hard to handle.

Whatever the reasons, the former owner frequently leaves…on his own, or at the request of the company.  Sometimes it is a mutual decision.

IMPLICATIONS

If staying on with the company is not likely to be a long-term proposition, here are some considerations for potential selling owners:

• Don’t expect things to be the same after the sale…recognize that they will be different and largely out of the old owner’s control.
• Get a good price for the business in cash and promissory notes not related to continued employment. If too much of the value is tied up in future salary, it may never be realized.
• Think carefully about what life would be like without that ongoing salary. Is employment elsewhere a realistic option? Is the purchase price adequate to fund continued lifestyle WITHOUT receiving a salary? What about health insurance?
• Limit the amount of deferred value that relies on detailed calculations requiring an inside knowledge of how the business is doing. It can be hard for an outsider to assess if the company is achieving targets that figure into future payouts.
• Don’t try to influence valued employees who have concluded that they have a better future elsewhere. Employees frequently understand that things will never be the same before the boss does. It is not fair to hold someone back to “still work for me” when that may or not be the case.

The sale of a business is an emotional and stressful time.  Owners considering selling and staying on board with the buyer need to find the time to consider carefully and logically all the implications of taking this route.  Having conversations with trusted advisors is strongly recommended.

Doug Jones, is a Managing Director in the Finance and Advisory practice at Fahrenheit providing senior financial management services to small and mid-size organizations. In addition to serving his own clients, Doug manages relationships with companies using other fractional resources on a short-term, long-term or project basis.  Doug has over 25 years of experience as a CFO with various middle market companies, and has helped several of those organizations and our clients successfully navigate the process of exiting their businesses.  If you want to discuss this topic or how Doug or other members of The Fahrenheit Group can help your organization, please connect with us at info@fahrenheitadvisors.com.