Do you want to get paid a bunch of money to sell your company but don’t want to stop working yet? A sell-and-stay strategy can help you monetize your lifelong work while allowing you to focus on the part of your job that you enjoy.
A sell-and-stay strategy is a transaction that looks like a merger crossed with an outright transaction. It involves the seller getting paid upfront, instead of exercising a more conventional “earn-out,” which forces the seller to take on some payment risk.
Instead of the owner walking away, she sticks around and gets paid as an employee or independent contractor and helps the new owner transition. This exit strategy works best for sole owners who want (or maybe need) to pull back from the office to some degree.
Many business owners don’t get tired of performing their craft work — they get tired of how and when they work. They get sick of being the hub in a hub-and-spoke system, which is a situation when everything — human resources, day-to-day operations, compliance — runs through the business owner.
Consider the airport model and its hub-and-spoke system. If you’ve ever flown Delta, you know its hub is Atlanta — virtually all Delta flights connect to ATL. If something goes wrong with the hub, all its spokes are negatively affected.
You don’t want to be the hub. You don’t want your business’ moves to revolve around your approval or effort. Don’t you want someone else to handle that headache?
Gary used the sell-and-stay strategy to walk into retirement.
Gary owned a small financial advisory firm in the Pioneer Valley. Last year, Gary celebrated his 70th birthday and his 26th year as a financial adviser.
Gary enjoyed playing golf with his clients and calling it “work.” And he looked forward to traveling to Florida on the company dime to visit “clients” during New England winters. Two forces converged against him.
First, Gary needed to improve his decade-old workflows. The business had been able to get by with a staff that had mostly learned their skills on the job. Then, Gary’s company had grown enough that he required a skilled compliance and operations professional.
He was able to delegate some of the responsibilities to employees, but none of them was qualified to advance the firm to a higher service level. They were not operating as best in class, and that affected the clients’ experience, as well as the company’s overall growth rate.
Second, Gary’s wife, Shelly, had been retired for seven years. However, her retirement was derailed by Gary’s work/life since, much to Shelly’s dismay, Gary was content dying with his boots on. Shelly did not envision that her golden years would include her husband working. As a result of Gary’s continued work, Shelly sacrificed time she could spend with out-of-state grandkids and out-of-country wineries.
Gary needed both a professional and personal solution.
Being the sole owner of a firm is a dangerous game for clients as well as employees. And in this case, it was a danger to Shelly. If Gary became incapable of performing his work, how would Shelly replace that income? According to the Financial Planning Association, some 78 percent of business owners plan to fund 60 to 100 percent of their retirement needs by selling their business. However, if Gary could no longer show up to work, then the company could become worthless.
Gary sold his business to a larger firm in the Chicopee area, which took over compliance and upgraded the operations. Gary sold, then stayed part time, which assured a high client-retention rate. Shelly was delighted because their time freed up, and now they had an investment portfolio to sustain a passive income. They could satisfy all of their needs, wants and wishes without relying on Gary.
A sell-and-stay strategy can let you do the favorite parts of your job, at the hours you want.
While you continue to earn an income, you can enjoy a gradual departure from your work family during a preset amount of time.
To do this, a business broker (not a real estate broker) will conduct a formal valuation, then search for a buyer using the same methods of typical sales. Sell and stay increases the possible number of buyers because it is attractive to both bigger and smaller firms.
Bigger candidates, who were potential buyers, are attracted to sell and stay because they retain owner knowledge, improve the likelihood of client retention and instantly add to the profit margin through consolidating operations.
Smaller firms might only have been able to merge with you, but now they can access your expertise, client list and other assets and instantly have the scale to absorb the higher volume of work.
If you are the buyer, this flexibility gives you the potential to acquire a firm you might not otherwise have had access to.
Your unique goals require a creative strategy to help you achieve minimum day-to-day grind and maximum sale price. If you’ve been feeling trapped by your duties, the sell-and-stay approach can help you wind down management obligations and allow you to concentrate on what you genuinely enjoy. And get paid well to do so.
This article originally appeared in The Berkshire Eagle on September 18, 2020.