If you are a small business owner, you may have been approached by a search fund regarding a potential business acquisition. While it may be tempting to sell your business to these investors, we caution against doing so! In this blog post, we’ll explain why selling to a search fund can be bad for small business owners.
One of the main reasons why selling to a search fund can be detrimental is that search funds are often backed by investors that you are not aware of who may gain ultimate control of your business. So the person you are negotiating the acquisition with may not be the person that ultimately carries on your business and the legacy that you have built and may not have the same vision or ambitions as you in taking over the business.
Another reason why selling to a search fund can be devastating to a small business owner is that search funds have the resources to court small business owners into an acquisition while privately working to limit the purchase price through loopholes in contracts and other unanticipated and fraudulent behavior. Many small businesses are not as sophisticated as the investors backing the search funds and can be taken advantage of in these business dealings.
An additional reason why selling your small business to a search fund can be problematic is that the search fund may ultimately decide to liquidate your business and its assets to maximize its return on investment. This can often leave small business owners with nothing after they have sold their business and can destroy the legacy that they have worked so hard to build and deplete any retirement they hoped to have.
Yet another reason to be wary of selling your business to a search fund is that they may not have the same commitment to the local community and its employees as you do. Search funds are often based out of state or even out of the country and their primary focus is on making a profit for their investors. They may decide to move the business to another location or lay off employees to save money and increase profits.
So if you’re a small business owner, we caution against selling your business to a search fund. There are many risks involved in doing so that can be detrimental to you and your business. It’s important to do your research and understand the potential risks before making any decisions.
Selling your business can be a difficult decision, and you want to be sure that you are getting the best possible deal. If a search fund approaches you about selling your business, do your research before making a decision and retain a business attorney throughout the process. There are many factors to consider before selling, and we hope this blog post has helped shed some light on why selling to a search fund may not be in your best interest.
So if you are approached by a search fund about acquiring your business, think twice before signing on the dotted line! It may not be in your best interest to sell to these types of investors.
If you’re interested in learning more, we suggest checking out our blog. Thanks for reading!