One business advisor recommends professional services businesses to develop a group of employees who are willing and able to buy the business
Selling a professional services business to a third party carries significant risks, according to business advisor Josh Patrick, in a Forbes post.
“To me, this is not a great way to transfer your business,” he writes. “Instead, what if you found some good people inside your firm to take over your business when it’s time for you to leave? I bet you would find this way of business transfer much more satisfying and financially safer.”
He also cautions against business owners who finance the majority of a sale to an external buyer.
“If the buyer doesn’t service your old clients well, your clients will leave. If your clients leave, you can be sure the buyer will stop paying you. You have little or no recourse because the clients are gone and if you do take the business back again, there’s nothing to take back,” Patrick says.
As an alternative, he recommends that professional services businesses develop a group of employees who are willing and able to buy the business.
“You might not get as much money upfront, but you’ll really know who’s buying your business. You’ll have had years to decide whether your new owners are trustworthy. That’s really what you want.”
Patrick says seller’s remorse is one of the primary issues he confronts when working with clients.
“It’s rare that I see a business of any sort sold where the selling owner is happy and rides off into the sunset,” he says. “Instead, what usually happens is they become unhappy and bitter at what the buyer has done to their business.”
But if the business is transferred to individuals within the firm, there’s a strong likelihood that you will have an opportunity to stay involved in the business.
“You have a chance to make sure that what made your firm successful is still in place. You’ll be able to influence behavior and you’ll have a higher likelihood of being paid the money that is owed you.”
Other benefits include the opportunity to mentor the next generation of employees and providing your clients with continuity.
“Your clients will not feel like they’ve been deserted,” he writes. “The junior advisors who buy your firm will probably continue providing the type of service you have provided for years.”