What happens to my company after I sell?

By Max Oltersdorf
CEO and Co-Founder at Quiddity

Make sure whoever buys your company takes care of it!
Make sure whoever buys your company takes care of it!

Concerns about what is going to happen after your sell your business are natural. Chances are, if you’ve built a great business, you want to make sure that your employees are taken care of, that your reputation in the community isn’t tarnished by someone coming in and cutting the business, and that your customers get the same level of service they’re used to.

Furthermore, you think it would be great to see your company continue to grow and evolve. Imagine one day seeing your company as a national or international brand. You’d be able to tell your grandkids that you started that company.

Once you sell, you’re out as the decision maker. But there are still certain steps you can take to ensure your legacy and protect the employees and customers you worked so hard to help.

New owner = New rules

At the end of the day, if you sell a majority stake of your business, the new owner can do whatever they want with it. Before you sell, most potential buyers will be charming: “We never cut any staff, we only want to grow the business, and we’re very ‘founder friendly.’”

The most important thing you can do is choose a partner you trust to sell your business to. If you sell 100% of your business, you will have absolutely no control or recourse over what the new party does with it. If you're selling an eponymous business (e.g. Smith Consulting), this is especially important to note as you’re partially betting your name and reputation on the fact that the new owners are good actors.

Therefore, another thing you can do if you’re concerned about the future of your business is to retain a stake in the company after you exit. That way, you retain some influence and get a say in major decisions affecting the business. Even if you’re no longer involved in the day-to-day operations, the new investors and your (now former) employees will continue to respect your opinion and may look to you for advice.

Things to expect

For the one-or-two year transitional period, you’ll likely continue to be involved in the day-to-day of business. This can be an extremely exciting time, as you get to see what a well-financed partner can do to the growth rate of the business. You’ll also see whether you made a good choice in partner and whether they are staying true to the promises they made before you signed. This is also a good time to groom the new management team that is expected to take over after you step down.

There also may be a conflict in your own mind: Many business owners sell because they are ready to get off the “treadmill” and spend time on other things. Depending on your agreement, you may be working towards an earn-out or other additional compensation post-close, which could actually incentivize you to work harder. This is where being especially clear about your expectations before you sign the deal come in. I know it sounds obvious but don’t sign an agreement with a multi-year earn-out if you aren’t willing to continue to work hard. The only thing that can do is build resentment between you and the buyer and reduce your company’s long-term chances of success.

Depending on the buyer, they may have a timeline for their eventual exit of the business. Not all buyers think this way but many PE firms have time limits imposed on how long they hold a company before they have to return that capital to the original investors. Make sure you understand their time horizon and intentions before you sell the company, not after.

Conclusion

Once you sell your company, it’s no longer yours to control so make sure you’re getting into bed with the right people before you sell. Selling your company to actors who aren’t concerned with the wellbeing of the employees can negatively impact your legacy, both at the business and in your community at large. If you care about that, make sure you’re putting safeguards in place before the transaction and engaging with the new owners post-close.

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