Selling a Business: The Emotional Aspects
Selling a business is an intensely personal and emotional event.
I’ve written previously about preparing for the sale of a business but those posts focused primarily on preparing the business. The owners also need to prepare themselves for what will probably be one of the most emotionally jolting events of their life. It will almost certainly be the most significant financial event.
I started a wholesale/distribution business in 1991 and sold it six years later. Though it was not for sale, the event proved the axiom that everything’s for sale.
Though the financial return was quite handsome (remember: it was not for sale), the main problem was that I was not prepared emotionally for the sale or its aftermath. And the resulting emotional turmoil was quite unpleasant. More on that in a moment.
What Should We Focus On?
Business owners – and, in many cases, the business brokers they engage – focus on how to maximize the business’ transaction value; how to get the most dough at closing – but spend little time determining what is the best personal outcome. Structuring the sale with the best personal outcome in mind often means considering factors other than financial metrics, and can depend greatly on how the owner envisions their life post-closing.
For example, if the owner wants to spend some number of years after the sale involved in the business at some level, what level of control – or lack thereof – does he or she expect? Does the owner have family members – productive or otherwise – involved in the business and, if so, is their continued involvement after the sale an important consideration for the owner?
In order to answer these questions and to help reduce the potential for “seller remorse” post-closing, non-financial factors must be considered when planning the sale of a business. And a professional business broker should be at least conversant in this aspect of the planning stage.
Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to market and sell businesses.
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In the mind of most business owners, their identity is tied directly to their business. Mine was.
Wherever I went – the grocery store, restaurants, the gym, etc. – many people knew me as the owner of my business.
From the moment I awoke in the morning to the moment I drifted off to sleep at night, I was thinking about my business. Then all of a sudden, it wasn’t mine anymore.
It was quite a jolt to wake up the next day and, not having planned, not knowing what to do.
Many sellers find themselves in similar predicaments if they have decided to sell without planning.
Selling a business without a plan can be the result of receiving an unsolicited offer – as was the case with me. But it can also be the result of a business setback, major or minor. Owners have told us they’ve just discovered that an employee was caught embezzling; that they’re tired of managing employees and the risks being an employer entails; Or the tax authorities are claiming her owes $200,000; Or a competitor has just received approval from the authorities to open nearby; Or that the latest minimum wage hike will effectively force them to consider closing. In none of these instances was a plan even considered.
These owners had become what is referred to in the real estate industry as “don’t wanters”. They wanted out. As a result, assuming the business was successfully sold, it probably sold for less than what would have been the case had the proper planning been done and, in all likelihood, the seller was a bit lost once the dust settled. And, when the seller finally figured out what they wanted to do next, they came to the uncomfortable realization that the amount of money they received at closing is not adequate to support their new plan.
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.
Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to become a professional business broker.
Become a Professional Business Broker…
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!