Business owners are often told to roll equity into a sale, meaning they keep a stake in the company. But if you're selling to a financial buyer who's good at raising money but not at running operations, you might be leaving your retirement in the hands of someone who could tank the business.
You have to roll equity. You have to leave some money invested. That's a lie. Every deal is different, and every buyer is looking for something different, potentially. Does considering investing in the new company or leaving some money invested open you up to more buyers? Absolutely, it does. The more you're willing to be creative, the more people come to the table. Rolling equity, what that is. If they give you a million dollars for your company and you roll 20% equity, you only get 800,000. 200,000 stays with them. And they call that the second bite of the apple. There's lots of different ways that they try to brag how good it is. One going to save you tax money, because you're not going to get that money. Second part is they're going to sell your company. They're going to buy a bunch of them, sell your company down the road, and now it's going to be a bigger piece of the pie, which is true. But just like flipping houses or anything, there's got to be somebody new to sell it to, and they've got to be profitable and they've got to do a good job. Many of these financial buyers are incredible at raising capital, but don't know anything about running an electric company. That's right. And so my word of caution is if you're going to give a complete stranger 20% of your retirement with the belief that they're going to do a better job than you did running the company, you better hope they do.
