Top Reasons NOT to Sell Your Business Even in a Hot Acquisition Market
Thinking about selling your pest management business? You might want to think again. According to William Hoffman, ACE and President/CEO of Hoffman’s Exterminating Company in New Jersey, it may seem like a “no-brainer” to sell your business in a hot acquisition market. However, he encourages owners to think very carefully and explore all of their options before making this life-altering decision.
“The money is enticing for a lot of the smaller businesses, but many of them are not as happy as they thought they’d be after they sell,” Hoffman warns. “There have been some great success stories, and there have been some horrible failures with these mergers and acquisitions. But I think just selling the business for the cash-out is the worst possible thing you can do.”
Hoffman, who spoke on this topic during a PestWorld 2019 conference session, says pest management owners should weigh all the pros and cons before selling. Keep reading for some tips on how to make this critical decision as well as a couple of good reasons NOT to sell.
CREATE AN EXIT PLAN
When a corporation makes an extremely attractive offer, you may be tempted to sell on the spot. However, when it comes making such a weighty decision, knee-jerk reactions are a major mistake. Think about selling your business as a marathon, not a sprint.
“I think it’s got to be part of your succession plan,” Hoffman emphasizes. “Just like when you plan your business, when you put together a three, five and 10-year plan, I think you also have to do that when you’re selling your business. What does it look like selling today? What does it look like in five years, what does it look like in 10 years? Does it meet all your needs both personally and financially? Does it meet the needs of the staff that you’ve developed over many years?”
He says you should put as much consideration and effort into exiting your business as you did when you were building it. “I think it’s very important that you evaluate everything, not just the cash you might receive,” he adds, pointing out that you will lose many perks the moment you sell the business. “There are a lot of benefits to owing a business. Family members are usually involved in small businesses, and a lot of your social events are tied around your business because of conferences and national and state association events. And there are always legal benefits to owning a business.”
SEEK ADVICE AND EXPLORE YOUR OPTIONS
As you consider whether or not to sell your business, don’t go at it alone. Hoffman says you should consult a few people to help you make the right choice. First and foremost, talk to those who will be impacted the most: your family.
“The first person they should consult is their significant other and their closest family members, because it’s a huge decision,” Hoffman says. “Pest management businesses are usually family-oriented businesses.”
While it may not be a popular opinion, Hoffman believes owners should also discuss this decision with their staff. “While I don’t think you should tell everyone, I think there should be some confiding in the top leadership,” he says. “I’m always very honest with my people. I tell them when I’ve been approached and we’ve had some big numbers thrown at us, but we’re not in a position to sell yet. We’re still in it to win it. And I tell them that if at some point if I’m seriously considering it, I will talk to them and give them a timeline.”
Beyond your family and employees, he says it’s important to seek professional advice from a range of experts. “I think you should consult people within the industry, but it’s also good to look outside the industry every once and while to ask if we’re achieving all the goals for the company,” he suggests. “Talk to financial professionals or merger and acquisitions people and other experts.”
CONSIDER THE WHY
Before you sell, one of the key questions you should ask yourself is, “Why?” What is the primary force driving you to sell the business?
“Is it because of your health? Is it because of your quality of life? Is it because of a life changing event?” asks Hoffman. If the answer to any of these questions is yes, he says you might want to consider selling. On the other hand, if it’s all about the money, tread carefully.
“If you decide to do it just because you heard it’s the best time for the money, I think that’s probably the worst thing not only for you, but also for this industry,” Hoffman stresses. “This industry is made up of a lot of small companies and mom and pops, and we don’t want five big companies. We want lots of small companies. Don’t get me wrong, I love the big companies because they help support us. Theoretically, most of us got our start at one of the big companies, and then we went out on our own. So, they serve a purpose.”
However, he believes there should be a healthy balance of small businesses and large companies in the pest management industry. “I think it elevates the industry because the small companies push the big companies so they can’t just sit on their laurels. And the big companies push us because of the ability for technology and research and training,” he explains. “So, it’s good because they can’t be complacent, and we can’t be complacent.”
TWO GOOD REASONS NOT TO SELL
All things considered, Hoffman says there are two very good reasons NOT to sell your business—even in what seems like a red-hot acquisition market:
#1: Owning a small business is the American way.
“I know it sound cliché,” he says, “But I think the number one reason to own a small business is that it’s the American way. To be a self-entrepreneur, to develop your own strategies and your own resources. To be independent, competitive and create different services and ideas. I think that’s the number one reason.”
#2: Ownership is freedom.
After selling, many small business owners quickly realize they will not maintain the same level of freedom. “If you started the business because you are an entrepreneur, a researcher or a developer, the personal withdrawal you’re going to have from that will be overwhelming,” Hoffman says. “And all the money in the world can’t buy that back.”
Selling your business is kind of like giving up your position as head coach and stepping down to be the assistant coach or something even less significant, he says. “Are you ready to give that up and be something of much less importance to a bigger organization?” he asks. “We all know that no matter how these things work out, these organizations cannot keep everyone at the top. They don’t absorb all these companies to bring in all the top managers. What we find is these companies need the workers, the sales staff and the customer service reps. They don’t necessarily need the leadership.”
So, be sure to ask yourself if you’re ready to give up that leadership role. “Regardless of the promises made, you’re not going to have the same freedom or leadership that you did. Are you ready? If you can say yes, I’m ready to sit on the beach and drink a margarita, then okay. It’s probably time. But if you still love getting up and fighting the fight and winning the game and planning and developing, then you’re not ready.”
IN IT TO WIN IT
Once you’ve weighed all the pros and cons, consulted the key people and considered the advantages of owning a business, you may decide it’s not time to sell. If you’re still in it to win it, good for you! But how do you continue to grow your business and keep it profitable?
“Okay, so I convinced you to stay in it and not sell. The next part to consider is: How do I stay in it when all of this money is thrown at me?” he explains. “It’s time to think about financial assistance, ESOPs (employee stock ownership plans), SBA loans and grants, and a strategic partner. You need to think outside the box. There are many methods you can use, and some of them have huge tax advantages over and above selling the business and paying capital gains.”
After all, there are plenty of small businesses that have managed to stick with it for 200+ years. “There are multiple choices outside of selling your business,” Hoffman concludes.
BY AMY BELL