We have worked with many business owners who want to sell their business, or at least believe they do. If you are a business owner considering it, we hope this will be helpful as you work through what is not an easy decision.
Selling a business is about far more than money
While it is common to consider the financial impacts of selling one’s business, we find that the emotional side of the equation does not get sufficient consideration. For many, the business has been ‘their baby’ for the majority of their adult lives. Their personal identity is often intertwined and even the idea of separating them is frightening to some.
It is important to understand both the business and what the seller is really looking for (beyond just a higher price). Knowing their passions outside of work, family commitments, health considerations etc, all help to better appreciate the person and how they see life after the sale. This matters not only in knowing if they are a serious seller, but also how to structure a deal and expectations of involvement (or not) post close. Having a seller wrap their head around what their day-to-day life looks like post sale can make the process far smoother for both sides.
An owner may say they want to sell, but could very well not actually be ready
Many business owners speaking to potential buyers will naturally say they are ready to sell. Before getting to that point, they will have often gone through the motions (i.e. sought out advice, prepared clean financials etc) when in reality they may not have mentally accepted the fact that they will be moving on. Selling the business is a major mindset adjustment and it is important that the seller has truly mentally made the commitment. This is a very different than simply thinking that it is rationally the right thing to do.
Many sellers we have dealt with are at the age where retirement is natural. In many cases they have close friends or peers who have already done so. In other cases, it has been triggered by a life event that has changed their priorities. Regardless, it is critical that a seller is truly mentally onside for reasons that matter to them. Early in our process, we aim to have an open and honest conversation to ensure they are truly ready. Despite this, we’ve had situations where the potential sellers’ actions have not been consistent with their words.*
Business owners like to be in control. Plan accordingly
In many cases business owners are, understandably, control freaks and very accustomed to being completely in charge. Many believe their involvement or oversight is critical for the business to run properly. It can sometime take time for owner to recognize their business can run well, even if it is not done exactly as they would choose to do it. Since managing the transition well is so important, it is necessary to get a true understanding of all tasks done by the seller, as well as by key individuals at the company. One can then create a thoughtful transition plan that achieves the objectives of the seller and buyer, who sometimes have conflicting agendas, but both are aligned in wanting the business to succeed.
Ensure the family is on board and fully aligned
In dealing with companies that are owned by multiple family members, or have multiple family members work in it, it is very important that all parties are on the same page. While levels of involvement and economic interest often vary, one should not underestimate the impact if not everyone is on board with a sale. There are further considerations if some members of the family wish to remain active in the business. In many cases these family members could be highly valuable, in others, less so. Being honest and open upfront about ones plans for the business can help ensure that if your proposal do not align, you will know earlier vs. later in the process.
We recently had a high-level agreement in place with the business owner, only to find out his silent partner (his wife – who we were told was onboard), turned out to be far from silent and had very different ideas than her husband! Had we ensured all parties were on the same page earlier in the process, we could have avoided going down the path.
Do the sellers still want to be mentally invested in the business post sale?
This can go either way. Understanding what a seller truly wants (vs. what they may be saying) is important in structuring a transition plan that makes everyone happy.
There are certainly times when a business owner is tired, burned out or simply has other interests that will occupy much or all of their time post sale. In such situations, it is important to be transparent about the transition and what needs to be done to ensure it goes smoothly on a timeline that they are onboard with. Fortunately, with some good planning and working closely together, it is often possible to engineer a quick and seamless transition.
In many cases however, a seller still wants to be at least partially mentally invested in the business. While they often want to remove the stress and responsibility of operating the business, many will still want to remain engaged in some capacity and feel they are helping it realize its potential. In the right circumstances this can be very beneficial to the seller, buyer and other stakeholders. It is interesting to see a business owner focus their energy on what they want to do instead of what they need to do!
Depending on a seller’s engagement with the business or life situation, rolling equity can be a great way for the seller to stay engaged, both mentally and financially. This does need to be managed carefully however. We have seen situations where a new manager finds themselves steering a ship with two captains! We view a successful transition of a previous owner to a new manager like passing the baton in a relay race; it needs to be done when everyone is ready, swiftly and in a fashion that allows the receiver of the baton (new manager) to clearly be holding it after the handoff.
If you are a business owner considering selling, we would love to chat and see if BSP would be a good partner. Having been through this process many times, we are also happy to share our views or provide contacts of those who may be of help.
*We had the scenario where we were far advanced in acquiring a business, only to find out (in the very late innings) that the seller had a change in heart. While they thought they were ready (and were in many ways) they simply could not let go of the business. Needless to say, it was an unfortunate situation.