6 Things Private Equity will do After They Buy Your Business

hi jim schleckser from the inc ceo project i want to talk to you about what's going to happen to your company after you sell it to a private equity firm now look at the end of the day if they own the firm they can do whatever they want to with it but you might might want to know what's going to occur so there's six things to keep in mind the first thing is they're going to want to keep you well most people think after they sell their company they're going to cash the check go to aruba and sip fruity drinks that's not the way it goes you're going to need to stick around at least for a transitionary period to teach them the business the second one is they're going to fire you you go whoa wait a minute jim the first one was going to keep me and now they're going to fire me yes they're going to fire you almost in every case with the ceos we've worked with after they've been bought by a private equity buyer within one year they're fired why because there's a fundamental disagreement in how the business should be run and either the ceo leaves or the private equity firm asks them to leave the third thing they're going to do is they're going to put debt on your business why because they can and that's part of their model so you have a zero debt mentality you're going to need to get comfortable with debt because that's how private equity firms maximize their return on their investment by including debt the fourth is sacred cows are all on the table so if you've got a cousin in the business that's not performing or an aunt they're on the table and odds are if they're a non-performer they're not going to be around for very long so if there are any sacred cows in your organization that don't make sense economically they're going to get attacked the next one is they're going to sweat the assets now a lot of entrepreneurs think about the p l the profit i make and how is that business doing they don't worry so much about their balance sheet but the balance sheet is where the private equity firms are going to work hard so they're going to make you sell inventory increase payables and reduce accounts receivable to maximize the cash coming out of the business and the last one is special distributions if the business begins to make profit and they have accumulated wealth they're going to do special distributions to themselves why because they can and because it begins to take cash off the table so they can begin to play with house money so if you're not comfortable with those things a private equity buyer may not be for you but if you are considering it be ready for those six things to happen