This morning, my wife and I flew back from Arizona from our 2nd home. We used Uber for the first time to get to the airport: marvelous service and cheaper than a cab. Our driver, Dale, was courteous and friendly.
My wife, who can find out someone’s life story in a matter of minutes, asked him what he did for a living? He said, “I used to own the largest privately owned glass business in the United States. Well, as you might imagine, that peeked my interest.
He continued, “I sold it to my best friend and partner after 35 years of working together.” “So how did that work?” I asked him. “Well,” he said, “Horribly.”
Apparently, his best friend and partner ran the company under within one year. He was now relegated to consulting and driving for Uber to make ends meet. So what did a guy who ran a $25 million year business do wrong when it came to selling his business? How could he have avoided this common tragedy?
He probably made a number of mistakes.
1. Whether you sell to your best friend or a family member, the rules are no different than if you sell to a total stranger.
2. In most cases, try to get at least 50% up front for the sale.
If your buyer cannot afford to put down 50%, then you must maintain control and continue to run the company until he/she or someone else can.
3. Giving the reigns to the new owner to run the business is never a good policy for a private sale.
It is preferable that you are hired as a consultant for the first three to five years to protect your investment.
4. Try to get the new buyer to get his or her own financing for the balance of the buyout.
Many private deals fail because the new owner cannot make their payments. Eliminate personal financing to avoid working for another three to five years.
What most buyers miss or forget is that they represent the driving engine of their business and its success. They discount their value to the business. It is the principle reason why only 30% of businesses survive if the owner dies.
If an owner overstates their own value, they will create a transition of the business that involves training and modeling way before the sale.
Whether it is a family member, friend, or complete stranger, YOU need to be replaced by one or more qualified people before the sale takes place. And you need to personally train them.
Has this happened to you, a friend or family member? Tell us your story so that we can help others not make the same mistake. Are you thinking of selling your business in the next 5 years? What are your fears?
Our Uber driver Dale was also sued by three of his past clients even though he was not the new owner…he definitely needed help with this transition!
By Joe Sturniolo
Christian Family Legacy and Wealth Planning