Originally published on Axial Forum: http://www.axial.net/forum/5-types-financial-buyers-intermediaries-dread/
I learn so much from people that have built their own businesses. It’s amazing to see talented, driven individuals who took the risk to go out on their own be successful. Here on LinkedIn and other business and social content sites, we tend to see a lot about the VC or high profile backed start-ups in mobile, cloud, and technology segments – but there is a whole other set of businesses where the risk is no less, and the entrepreneurs are just as spectacular.
These business owners have often carved out tremendously defensible markets with repeat customers, sticky revenue, and eye-popping cash-flow that will never see the headlines. They are content to make money while existing just beneath the radar of social media. And they are the type of people that I’m fortunate to work for every day. How lucky am I?
If you’re a business owner like this, and thinking it could be time to sell, I’d recommend you have a look at a recent Forbes article, “22 Mistakes Made By Sellers in Mergers and Acquisitions”. It’s right on the money. I’d also recommend if you’ve never sold a business before, that you read the book written by my colleague Ney Grant called “How to Sell Your Mid-size Business”.
But before you can even get to the nitty-gritty of the ‘HOW’ it’s all done and the mistakes to avoid, I have four highly important considerations for you to reflect on. They start with the ‘WHY’. My job as an advisor is to make sure you have thought through the ‘WHY’ and follow up possibilities in an organized way, so that you don’t stumble into the many challenges that are inherent to getting a deal done.
Why are you selling? I get calls from business owners all the time that can faithfully be plotted along the two axes of Experience and Readiness. To keep it simple, let’s say Experience can be broken into two categories: have you bought or sold a business before. That’s easy. Readiness on the other hand is a bit more complicated. Like Experience, there are also two components to Readiness, again to keep it simple: Business and Personal. Now, if the business is not ready, it’s not ready. That is generally not too hard to see. A good advisor and or accountant can help you get on track. But Owner Readiness? That’s what really needs to be explored. Why does an owner want to sell their business is amongst the first questions I ask.
The 'why' usually falls into one or more of five categories: retirement (including passing the business to a family member), fatigue/disinterest, health/family/financial pressures, new/other business interests, and recapitalization for growth/Chips-off-the-table. The last two of these categories have an immediate next step for an owner or a path to ‘do something’. The first three do not: retirement, just selling because you’re ‘done’, and or having health/financial pressures don’t necessarily or naturally lead to clarity on what’s next and importantly if selling is even the right thing. Clarity on the ‘why’ and understanding the end in mind are the lynchpins to getting a deal done, and done right. Once this has been sufficiently explored and answered, then you can contemplate what’s next.
Are the other pillars of your life sturdy? It’s hard enough to run a business. It’s even harder to run a business and sell it. If there are other active life-changing events involving family, relationships, health and or other matters these will inevitably be emotional and mental drains that can lead to less than optimal deal outcomes. Put another way, you need to be able to continue to run the business and grow it like you are going to keep it, and be ready for the stress that comes with marketing a business for sale. That leads me to another area that a good advisor will help the business owner consider.
Are you ready for the work and the relentless scrutiny? Selling a business can be a very emotional and personal thing for many business owners. The risks often have been long borne and there is pride in the entity that has resulted, as well there should be. Diligence will be difficult, even with excellent advisors. Entrepreneurs typically have not had to prepare answers for any of the decisions they’ve made either in how they’ve run the business, organized the work, found customers, marketed, and accounted for all of it. Buyers bring hard hitting and insightful analysis and questions – and business owners need to understand it is part of the process. It’s not meant to be taken personally. Plus, it takes time, is a lot of work, and can be frustrating. As an owner, this is where you need to have the clarity of the outcome from the “why” to focus on.
Can you work for someone else again? Finally, for those entrepreneurs that are re-capitalizing and keeping minority ownership in the business, the real question is this: are you ready to work for someone else again? As a business owner you’ve been the go-to for all decisions – and now there will be some changes in delegation of authority. Can you envision yourself building this business with the new majority owners? What were the reasons you started the business in the first place? What are the outcomes you are looking for in the next stage? An owner needs to come to grips with this before deciding to sell to make sure the advisor focuses on the right type buyers.
Selling and buying can be emotional things, no matter how cold and calculated a buyer and seller can look on the surface. There can be ego, bad word choice, misunderstandings, over-reaching, petulance, pettiness – as well as teamwork, vision, potential, good chemistry, and sometimes even real humility and compassion.
Considering a sale? Get educated. Find an advisor that cares about you, understands you, and will help you work through your options. Because you’ve built an amazing business and you deserve to get to the outcome of the “why” that you want. And you already know that you don't need to be on the cover of Forbes to be successful.
David Walsh is a founder and Managing Partner of Harbinger Partners and a general all-around can’t-sit-still kind of guy. He advises business owners in the small to mid-market, consults with investors, hedge funds, and private equity on industry trends as well as sales optimization and business development for private businesses.