For some entrepreneurs, there comes a moment when they decide that they have reached the growth limit of their home-based business and wish to sell it. Or they receive the proverbial offer they can’t refuse to sell their business idea to a larger company or a direct competitor on the same level with them. The debate over the opportunity to stay in business or leave with your accounts filled with cash is complex and in all the cases involves both logical and emotional arguments.
It is not easy to give up, albeit for a fair financial compensation, something you’ve created, built and nurtured. On the other hand, if you have lost the appetite for being an entrepreneur, the idea of holding on to your business may become intolerable and affect both your professional performance and your personal life.
This article is not meant to give you a definite path to choose – this is your own responsibility. We only wish to point out what could go right or wrong in selling your business idea, how it may affect you in the future and why you should always consider every single aspect before you make a decision.
PRO: You Get a Sudden Cash Infusion to Start a New Business
Sometimes, you’ve got a brilliant new business idea, but you simply do not have the capital and energy to create and build it while operating your existing business. In this situation, it is worthwhile to explore the idea of selling your current business and using the cash you get as consideration for the sale to finance your new business idea.
However, you should remember that every business idea carries a risk. The business you operate now runs smoothly – thus, it works. The new one you wish to open may fail and you could lose all the money.
CON: You May Have to Sign a Non-Competition Agreement
Service-based businesses are, by their nature, competing against each other in a specific niche. If you operate such a business and you wish to open a similar one, under a different brand with a different strategy, for whatever reason, you may find that you cannot do so. The reason lies in the sale-purchase agreement you signed with the buyer of your existing business, which includes a non-competition clause.
Many business owners who did not pay attention to or chose to dismiss this clause paid a hefty price. In the business world, you really cannot have your cake and eat it at the same time.
PRO: You Can Continue to Act in a Management Role Post-Sale
Sometimes, a buyer wishes to keep you on as an employed consultant or manager. There are benefits to this situation – you still work in the business model you know best (since you created it) and you get the security and benefits of employed work (social security, health insurance).
CON: The Business May Fail under New Management
There is a big chance that your customers loved the specific way in which you treated them and did business with them. Once a new owner steps in, the changes they bring may not be appreciated by the customer base. This means that they will stop buying from the business and you will find yourself in a double-losing position: without the management job you negotiated during the sale and watching your business, which you built with so much hard work and dedication, fail.
PRO: You Can Invest the Money and Retire Early
If your business has grown into a successful mid-sized company, you could sell it for a price that allows you to retire, by investing the money and living off interests and dividends. However, remember that the financial markets are continually changing, the economy is not stable, and you could end up forced to come back from retirement to earn your living with an unsuitable gap in your resume.
CON: You Could Undervalue Your Business
This is the biggest con. Really, it is a shame to see so many business owners unable to calculate the fair value of their business or obtain a fair price for it during negotiations. Plus, there is always the chance that your business idea suddenly becomes trendy and successful – and you could have enjoyed that success if you had held on to it for a few more months.
As a final thought, no matter what you decide to do, remember that every offer you get to sell your business is a confirmation that you are doing things well. This may be exactly the motivation you needed to continue running your business.