Business owners are often surveyed regarding their mental readiness to exit their businesses. I have seen results that indicate a fairly high percentage that are not prepared, as high as 80% in some assessments. This is not surprising since most business owners that we meet with at our exit planning conferences are so busy running their businesses that they simply don’t have time to set aside for examining their exit options.
That is why so many business owners who attend our meetings thank us afterwards because the information we share is educational AND designed to help them begin to think about the issues surrounding the entire exit process.
And exiting truly is a process NOT an event. You can’t reach a point in time and say to yourself, next month I am going to exit! Or even six months. The reality is you need to begin preparing your business, and just as importantly, yourself, well in advance of the exit event.
What we have not spent much time on in this publication is the mental preparation you need to go through in order to ensure that YOU are truly ready when a buyer transfers several million dollars into your bank account and you are suddenly facing a huge, life-changing event.
Based on our decades of collective experience in working with entrepreneurs who are contemplating the sale of their companies, we have learned that there are several important areas that need to be examined in order to prepare a business owner mentally for selling. The reality is one of our key roles as M&A advisors is to develop a close relationship with our clients so that we can ensure that they really are sellers.
Countless times our deal teams have gotten to the 11th hour in a business sale process only to see the deal collapse because the seller got cold feet and rescinded the deal. Not only is this tough on all parties involved, it is also very dangerous as it typically opens your business up to a loss of confidentiality. As you get closer to closing a deal, it becomes harder and harder to prevent the news from trickling out to employees, clients, and competitors. This is especially the case if a deal falls apart because the owner(s) decide at the last moment not to sell.
Before you begin to even approach buyers, make sure you are mentally prepared to do so by closely examining these key areas:
Your financial review is important because you may overestimate or, in some cases, underestimate the amount of money you need from the proceeds of the sale of your company post-deal-close. We strongly encourage any business owner contemplating the sale of his/her company to establish a relationship with a wealth manager to accurately determine your financial readiness to sell and your monetary needs once the company is sold.
Likewise, meet with your family in advance and have a series of frank and open communications about what the sale of the business will mean to not only you but also your immediate and extended family. This is especially important for businesses that have been in the family for several generations where the family’s identity is closely tied to the existence of the company. Even if you are the sole owner, the sale of a family-owned business can create tremendous emotions for siblings, children, parents, and grandparents. If you anticipate how the family dynamics may affect you, chances are better that you will be able to weather all the emotions that will arise in actually closing the transaction.
Determining what you will be doing post-sale is likewise one of the conversations you will need to have with family members but especially your spouse. For many entrepreneurs, the running of the family business has precluded the development of hobbies and outside interest. In addition, after working 60-hour weeks for years, the situation changes radically when suddenly you are around your spouse on a full-time basis. We get calls frequently from ex-clients who are interested in acquiring a business from us because the spouse is begging them to get out of the house! It is far better to determine what you are going to be doing long before the transaction closes.
One of the biggest emotional hurdles for many business owners to overcome is the idea of handing over the daily operation of the business to anyone. After years and years of making key decisions, the concept of someone else doing so, and perhaps making DIFFERENT decisions than you might make, can be a significant struggle.
Several years ago I interviewed one of our clients post-close and he was a bit chagrined that the new owners were taking his baby in a different direction than he would have. Although he admitted that what they were doing made sense and that in the long term it was the right way to go, he still felt that emotional bond to the business. Fortunately for him, his close ties to the company did not preclude him from closing the deal (and picking up a rather large check as well). But they might have if he had not in advance come to the conclusion that he could relinquish control.
On the flip side, it is vital to consider that in most cases, the seller of a privately held company will be retained for a transition period post-sale (3-6 months is typical) or even longer if an earn-out is part of the deal structure. In either case, but especially the latter, the seller must determine if taking orders from a new owner is possible. Let’s face it – most entrepreneurs have egos that have developed over time that lead them to believe that they, shall we say, know it all. And this may be true but having that belief makes it hard to take orders from another person after all those years of decision-making. Only you can look inside and honestly say if having a boss is possible.
Finally, the ultimate question is, Why do you want to exit in the first place? When we ask this question of business owners we work with, the answers are as varied as snowflakes. They range from “I want to retire and spend more time with the wife” to “I need capital to pursue my next adventure.” Unfortunately, far too many business owners wait until one (or more) of the five Ds raise their ugly head before parting with their companies: Death, Divorce, Disability, Distress (business and/or personal), and Disagreement.
Although these predicaments are understandable, exiting due to one of these situations is thoroughly preventable with some planning and by preparing yourself mentally to sell your business. If you own a company, even if you are far from retirement age, it is vital that you begin prepping sooner rather than later. Even though entrepreneurs are the most optimistic folks on the planet, you have no control over way too much (see the five Ds again) to make the mistake of not doing so.
Knowledge is of course key here. That is where Generational Equity can really help you out. Our no-obligation, complimentary, educational exit planning workshop is designed to get your mental preparation started, as well as give you concrete ideas of how to begin positioning your company for sale.
Our sincere hope is that this piece, as well as our other materials, can begin to move you out of the 80% that are mentally unready to sell into the group that has a plan, direction, and timeline for their future.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2014 Generational Equity, LLC All Rights Reserved
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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