Published April 19, 2011

"I'll Just Keep the Company for Another Five Years"

By Scott Dickes

I recently heard these words from a business owner in his early 70's. This is not unusual. Of the 25 – 30 business we seriously pursue in any year, better than half of the businesses are not sold because the business owner decides to "just keep the company."

In this particular case, the business owner's rationale was as follows: Why would I sell today for X when I can continue to own the company and pay myself X over the next several years and still own the company at the end?

Fair enough: By keeping the business he is entitled to collect the future profits available to ownership, and a few years down the road he may have, in fact, earned X.  Yet in the meantime he will also have had all of the risks and headaches associated with ownership.

I think some business owners aren't particularly concerned about the time value of money and, being confident in their abilities, they are making a clear economic choice to pursue the potential future payments instead of receiving a lump sum today.

But in other cases I think there's another explanation: Some business owners are just not willing to let go. Their business has been such a big part of their life for so long that they would rather "die with their boots on" than move on, even if selling is the right economic decision given their age, the condition of the business, its need for reinvestment, etc.

One of our biggest challenges is to separate true sellers from those that just can't bring themselves to sell (see a previous blog post on this topic). Keeping the company is always a strategy, but it is not guaranteed to be the best strategy.  The last few years has confirmed this lesson.

SBD

Post script: see Part II and Part III of this series on keeping versus selling a small business.

Scott Dickes - General Partner

Scott founded Hadley Capital in 1998 with the objective of bringing a professional investment strategy to the small company market. Scott has spent the better part of two decades financing and growing small companies. It’s in his blood … he grew up visiting small companies on family vacations with his dad who was also a small company investor.

Scott works with Gillinder Glass, S&S, Custom Label, Harris Seeds, ISS, and W.C. Rouse, and was previously the chairman of the board of Packaging Specialists, JRI Industries and Kelatron, all former Hadley Capital companies.

He enjoys traveling with his family, flying (instrument rated pilot), rock climbing, golf, paddle tennis, and water skiing. Scott recently took up beekeeping as a hobby.

Scott is a Trustee of the Hadley School for the Blind (no affiliation). He holds a BA from Duke University and received his MBA from the Kellogg School of Management at Northwestern University. Scott and his wife have two teenage children.