Some businesses are hard to sell. In fact, more businesses simply close down than sell. *
I may have a third option for some businesses.
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| Friendly construction workers in Lima, Peru (Apparently, I don’t have a lot of construction photos.) |
I met a man who moved from the big city to a small town. As he went about building a business and life in the small town, he maintained his construction and remodeling business in the big city, commuting a few days a week. The income was still good, though the non-financial costs were getting too high. Most of his business came through the network of customers he had built up for 20 years. Many other good construction people in the city were short of work, so no one would be able to afford buying his business or even his customer list. He was thinking of just closing the business and walking away. I thought I saw a different solution.
The Solution
First, he needed to locate a small group of trusted people to take on jobs for him, in exchange for a finder’s fee or a percentage. Then, as customers called him, he could accept the jobs and refer them out, while making sure customers understood who would be doing the work. He would still draw income from the business, without all the additional stress of commuting back to the big city every week.
Of course it won’t last forever. Customers will drift away to work directly with the new trusted people. He’ll see fewer and fewer jobs as he is no longer present in the city.
He found the idea promising, and went off to try it out. I thought you might like to hear the idea, improve on it, maybe share it with someone who needs a third option for exiting their business.
*Note: No one knows for sure how many businesses sell each year, but the SBA says over 600,000 US firms close each year.
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Becky started Small Biz Survival in 2006 to share rural business and community building stories and ideas with other small town business people. She and her husband have a small cattle ranch and are lifelong entrepreneurs. Becky is an international speaker on small business and rural topics.
This is a great solution, Becky. It is such a pity for a business to close down completely but as you point out, if one person in the industry is having a hard time, it could mean that others wouldn’t be doing well enough to buy them out.
I can see how this would work well for service firms that work on fewer, larger projects at a time, but what would you advise for businesses that deal with more customers at a time and have smaller transactions? (Like restaurants, retail stores, yoga studios)
Is there a similar approach that might work there? I’m curious. Thanks!
Carmen, I agree that this won’t work for retail type small businesses. I’ll see if I can think of a way for them to sell without a traditional sale of the business. Thanks for asking!
Jeff sent this comment to be posted:
There’s a fourth choice that I’m surprised you didn’t see and a very important down side of your third choice you should.
The fourth way is to turn your business over to your employees. This isn’t selling because your not asking for money up front and you don’t even need to relinquish 100% of the interest in the business. It even helps in day to day employee motivation.
My employees know that my plan is to build this business for the next ten years and then it’s theirs. They will need to pay for it, but it will be easy to do as I’m leaving them with a plan to execute. It will fund a big piece of our retirement as well as give me a place to ‘putter’ if I want to. It also makes me available to consult if needed for something unexpected.
The down side to your third solution is very real. Those same good clients will hold YOU responsible for any problems regardless of what you tell them, and they may actually have a legal claim to do it. Very slippery footing….
Jeff, you’re absolutely right. While the man I was speaking with in this case did not have employees to work with, for any business with employees, an employee-ownership plan makes great sense. There are as many ways to structure an employee-buyout as there are businesses, so everyone can tinker around to set up the best plan for themselves. Thank you very much for bringing that up.
And I do agree that the solution I proposed isn’t great, but may be better than just closing a business and walking away. Anyone considering using this technique should check with a legal advisor to protect themselves before trying it.
Thanks for your additions, Jeff.