The Lessons

When considering selling a business, the owner must realize that the net proceeds at sale are not the only consideration; and it is incumbent upon those of us that are advising owners to point this out. The business owner must have a plan for life after closing for two reasons. First, the only way the business owner will know if the proceeds of the sale will be adequate to support whatever’s next is to know what’s next. What the seller intends to do post closing? If the seller’s plans are to simply nurse a Scotch on the veranda and watch the grass grow, that’s one thing. On the other hand, if he or she plans to spend the next 10 years traveling around the world or competing with Larry Ellison for the America’s Cup, that suggests that an entirely different financial condition will be required. Having a plan gives the owner a sense of how much money he or she will need for the life they have in mind post-closing (and a reason to get their business valued ahead of time). Knowing what the next step is helps a seller determine what financial resources will be needed post-closing. Knowing what the value of their business is allows them to see if the sale of their business will provide those resources. The second reason for knowing what the next act is, is that the business owner must be emotionally prepared to walk away from his or her business. This is often the most challenging part of a sale because the owner’s identity is usually directly tied to the business. Without a plan for “what’s next”, I can almost guaranty that, within 24 hours after the closing, the seller will start feeling lost. In my experience, most business owners are “doers”. They’ve got to have something going on; they’ve got to be involved, productive or engaged in some activity or pursuit that will give them some level of fulfillment, of meaningful existence. Nursing a Scotch on the veranda generally does not provide that fulfillment. If the next act is to sail around the world, has the boat been picked out? If the plan is to volunteer for some admirable cause, has the organization been identified and contacted? If the owner want to start – or buy – another business, have the plans for that been put in place? If he or she plans to buy a vineyard in Provence, has a property agent been engaged? Have French lessons begun? When my business sold, I was completely unprepared for life after closing. I stumbled around for the first few weeks having no idea what to do and, though I suddenly had some deep pockets, I was pretty miserable. Until I finally came up with a plan.

The Bottom Line

When selling a business, it’s important to establish in advance the primary purpose, or intent, for the seller’s money – both the structural and financial outcomes; what the next act is and how much is needed to realize that act – before taking any other steps. Identifying the primary objective of the sale changes the focus of the outcome to one that is generally more comprehensive than just “how much do I walk away from closing with?” It can help align the seller’s long-term strategy and decision making with the individual’s or family’s ultimate goals. If you have any questions, comments or feedback on this topic – or any topic related to business – I want to hear from you. Put them in the Comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast. I’ll be back with you again next Monday. In the meantime, I hope you have a profitable week! Joe