Selling a business is a difficult proposition. For those of us who have been fortunate enough to successfully sell a business, it may be tempting to use the proceeds from the sale to seed your next venture. But is it really the right time? Before you can know this, you must evaluate the true cost and what it will mean for you and your family. In this entry, I want to challenge those of you who are considering this to really think about the true cost.
Follow Along With The Financially Simple Podcast!
This week on The Financially Simple Podcast:
(1:36) Current economic factors
(4:37) Mass migration’s impact on local economies
(9:20) Personal considerations
(10:56) Taking care of yourself
(12:36) Taking care of your relationships
Selling a Business to Launch a New One: Current Economic Factors
By the time you’ve sold your business and worked through your earn-out and retention clauses, you might be thinking about starting a new business venture. But the world is a very different place than it was when you started your last company. For starters, many experts are predicting a recession. Obviously, opening a business in the face of a recession isn’t ideal. But why? You’ve gone through hard economic times before. So what’s different about starting a business when a recession is looming?
First, recessions often bring about reduced consumer spending. Because consumers are more cautious with their spending, demand for goods and services is lower. This can make it difficult to gain the traction a young business needs in its early phases. Similarly, emerging businesses may find it difficult to rise in the midst of increased competition. Oftentimes, established businesses will cut prices to remain competitive during a recession. As a result, businesses that are just entering the market may struggle to differentiate themselves in the face of ultra-competitive pricing.
Finally, access to capital is typically pretty limited during a recession. As lenders become more cautious about lending money, it becomes harder for new businesses to secure the funding they need to grow. Of course, with the proceeds of your recent business sale, limited access to capital may not be a deterrent to you. But there are other things to consider.
Mass Migration Across the United States
Over the past few years, there has been a mass migration in the United States. People from the West Coast are moving East. In fact, a recent study by the Federal Reserve Bank of Chicago found that California had an outbound move rate of nearly 60% from 2020 to 2021. These migration patterns can have varied effects on local economies.
For the communities they’re moving to, there’s a sudden influx of talent, ideas, and resources. This can lead to greater competition for would-be entrepreneurs in these markets. Similarly, it can inflate the cost of goods and housing, decreasing the potential for margin. On the other hand, if you’re in one of the areas that people are leaving, it could provide a scarcity of human capital. As these areas lose people who are highly skilled in their respective trades, it can slow economic growth which is further exacerbated by recessionary trends.
Since you’ve sold a business, you likely have a pretty good understanding of how business works. This probably means you’re fairly confident that you will succeed in your next entrepreneurial venture. After all, you’ve been through the process of starting, growing, and selling your business already. Why wouldn’t you be able to replicate it?
Friends, I understand your thinking because I’ve had the exact same thoughts. I’ve started and sold six businesses in my career. However, at some point, you will have to weigh the total cost of selling a business to start another. Now, you might be thinking, “Justin, I’ve already calculated all of my startup costs and drafted a comprehensive business plan to outline when I can expect to become profitable.”
I know you’ve crunched the numbers and I believe you’ve got a solid plan in place. But that’s not the full cost. How many birthdays and milestone life moments have you missed because you had to be present in your business? How long have you neglected personal well-being for the sake of growing that business? Now that you’ve sold your business, could it be time to spend time with the kids before they’re out of the house?
Take Care of Yourself
Friends, my point is this… owning a business is one of the most demanding career paths a person could take. You know this. Starting a business now will require even more of your time and attention. After my most recent sale, I realized how much I’d neglected my health. As a result, I’ve spent the better part of a year working to restore it. And I know I’m not alone in this regard.
Entrepreneurs who work 60+ hours per week are 35 percent more likely to experience heart disease. That number jumps to 74 percent for those of us working 70 hours or more per week. When you’re working to start a business, those hours are pretty standard. Similarly, 27% of entrepreneurs suffer from anxiety. That’s 9 points higher than the national average, folks!
These things should factor into your decision about whether it’s the right time to start a business.
Take Care of Your Relationships
Perhaps, this is an opportunity to grow closer to your significant other or rekindle friendships that have gone neglected over the years. Because entrepreneurs devote so much time, money, and attention to their businesses, others get less. This is one of the reasons the divorce rate among business owners is between 43% and 48%. Based on those numbers, many experts claim that entrepreneurs have the highest divorce rate of any other demographic.
So, even though you could take the proceeds from selling a business to seed another, and even though you very well could succeed at doing so, that may not be the best choice for this moment. Now, every situation is unique and a “one-size-fits-all” approach rarely works. However, I urge you to consider the full cost of starting a new business before diving in.
Ultimately, I challenge you to discuss this decision with a trusted advisor. If you don’t have one, reach out to us.
Folks, I understand the internal drive you have as an entrepreneur. We have the desire to make a path where there isn’t one. In many ways, that’s a good and admirable trait. But we must remember that there is a cost to all of this, and it’s one that we often don’t pay alone. So, before you decide to jump right into your next business idea, consider taking some time to enjoy what life has to offer.
Life is hard, but if you stop to take it all in, you’ll see that life is good. Standing still can be frustrating to the entrepreneur, but it doesn’t have to be. Considering the true cost of starting your next business could benefit you, your family, and your friends while making the launch of your next business at least, financially simple. Let’s go out and make it a great day!
Major decisions shouldn’t be made alone. If you’re considering launching a new business, reach out to our team. We have advisors all over the country who are ready to talk with you.