Business owners may find themselves contemplating selling their business and cashing out. It’s an attractive idea that leads many owners to gloss over the details of the exit process.
The reasons that make an owner consider selling can vary, but no matter what starts this train of thought, business owners should take a step back and conduct a holistic assessment of their motives and reasons to sell, as well as identify and prioritize the primary objectives of the sale.
Many sellers choose to run an auction to obtain every last penny from a potential sale. From our experience, we believe that a more limited approach achieves a much better outcome, as it improves the likelihood of a good fit and also minimizes much of the confidentiality risk.
Selling is like a marriage. Standard deal structures keep you in a financial relationship with the buyer for a period of time that ranges from 2 to 10+ years. In fact, nearly 100% of lower middle market sellers have ties to the buyer after a 2 year period and over 50% of sales involve a residual financial tie greater than 5 years. Because of this, the relationship you have with the buyer is much like that of a marriage. You want to make sure you can trust them and there’s fit and alignment with your values, objectives, and personality.
- Do you trust them?
- Can you get along with them?
- Do they have the capability to effectively run your business?
According to the Exit Planning Institute Survey, 75% of business owners “profoundly regret” selling their business one year after finalizing the deal. While the reasons for this discontent are varied, most are associated with poor fit that could have been easily avoided. To make sure that you fall in the minority, there are many factors to consider.
Just as someone should ask their prospective spouse about important topics such as children and religion before committing, there are a number of questions that owners need to ask themselves and their prospective partner before signing on the dotted line:
- Are you ready to exit the business you’ve worked so hard to build?
- Are you invested in the continuation of your business’s name and legacy?
- What will you spend your time doing after the sale?
- Do you want to relax and travel?
- Will you jump into new investments or business ventures?
- How willing are you to have continued involvement or financial exposure to the business?
- How important is fit with the buyer/investor?
- How important is taking care of your people and your business legacy in a transaction?
- Would you trade harmony for price?
- What is your confidence level in the future performance of the business?
Selling your business is an important once-in-a-lifetime event that will have a lot of impact on your life & happiness, so it is important to make sure you do it right. The time to ask these questions is prior to a transaction and it is vital to have frank discussions with prospective buyers to ensure alignment. To be part of the satisfied 25% you must prepare yourself for the exit process and be realistic. Whatever they may be, determining the reasons and questions around an exit will help you determine if it is the right move for you.