5 ½ reasons owners leave money on the table when selling a company
You started out of your garage. Things took off. Remember the Christmas party you couldn’t afford and had anyway? How about Tammy? She helped you open your first office, and she’s still with you 30 years later. Time flies.
It takes a split second. Bam! It hits you. Illness. Divorce. Departures of your top sales executive or your CFO. Children far more interested in running their own lives than the family business. Customer and market paradigm shifts. Time is nowhere to be seen when a business suddenly needs a buyer. And that’s the thing: When your back is against the wall, you are vulnerable to leaving money – a lot of money – on the table as you extract yourself from your business.
Wouldn’t you rather ride off into the sunset? Feel good about letting go, knowing you got top dollar for the business and that what you built will continue? Have extra moola to buy Tammy a Tiffany bracelet marking her lifelong commitment?
Okay, the last point is optional. Everything else, though, shouldn’t be.
Start here: Do your structural work. Plan at least one year out (Rome wasn’t built in a day, as the saying goes). Peel back the layers of your business, like an onion, before you sell. And be ready to entertain more questions about your business than you ever thought possible.
1. FIRST, GET YOUR HOUSE IN ORDER.
You’re not revolutionizing the structure of your company here. Instead, you’re cleaning it up and organizing details. Remember, for the potential buyer kicking the tires, it’s a lot of money and liability so follow the Scout rule and be prepared.
Find your articles of incorporation, your most recent lease agreement, employment contracts, and tax returns in order by year. Organize financial records, branding guidelines and sales reports.
Why money is left on the table: When you don’t take stock of your financial and legal affairs, it’s like skipping your annual physical and then finding out later that you have an unnecessary health issue.
2. CHOOSE YOUR SUPPORT TEAM.
Equip your people with tools to keep your business running smoothly during the massive distraction a transaction (yes, I mean massive, colossal). Selling a business is beyond disruptive. Here, there are two schools of thought: choose internal people as the face to potential buyers or outside advisors.
Let’s touch on this for a moment. Say your VP of sales is presenting to potential buyers – talking about your market penetration and strategy. This time takes him away from client meetings or leading brand initiatives, which in turn takes a daily toll on the business.
You might think: Why should I pay someone to talk to buyers when I’ve already got a salaried person sitting RIGHT THERE? When you start the process of selling a business, it will slowly become a full-time job. Taking people who are fundamental parts of your business out of their daily regime may erode your business at a time when you need it to run on highly caffeinated Arabica coffee.
Why money is left on the table: You stretch your key resources. You might save $150,000 in fees from external consultants, but end up not selling your business because you lost a client in the process and then decreasing your price by 10 percent – a significant amount on a $15 to $200 million deal.
3. COMMUNICATE WITH YOUR TEAM.
They know. Believe me, there is no way your people don’t know there is something going on. Lack of communication breeds panic and rumors; it’s akin to cutting off oxygen at 30,000 feet. Your “A” people find other jobs and the “B” and “C” people won’t have a clue what to do. At the end of the day, we all have families and bills to pay so keep them apprised of your vision.
Why money is left on the table: If you choose not to communicate with employees about the sale, people will know anyway and, worse, make up whatever they want. This tarnishes morale and productivity – key factors for potential buyers. Money aside, communicating with your team is a decent thing to do.
4. IDENTIFY THE TALKING POINTS.
Whether it’s your own managers or outside advisors, know what’s being shared. Control the message to slay doubt and fear. Anticipate questions.
Why money is left on the table: People know when you are full of doodoo. Articulate your vision in writing. When you don’t, lack of confidence sets in for the buyer, impacting your business sale.
5. WHEN YOU’RE READY TO SELL THE BUSINESS, IT MEANS YOU’RE READY TO NOT BE THE MAJORITY OWNER OF IT.
How close is your brand tied to you? Your answer should be: “I’m irrelevant.” An owner who is indispensable to a business is a liability. Buyers are intent on making sure the magic continues after you are gone. Here is what you create and spotlight instead: clients, brands, production, business processes, technology, intellectual property, equipment, industry reputation, and your personnel’s collective value.
Why money is left on the table: An owner must come to terms with something that is finite. And that, my friend, is hard to do. You (the owner) by definition need to build a business where you can be irrelevant. This is not the time to grab the glory. Otherwise, they will ask you to stay on board, and you go from being business owner to having a boss.
½ REASON: WE HUMANS HAVE A NATURAL TENDENCY TO PUT OURSELVES IN A CORNER.
“I can’t” gets all dressed up with smart-sounding excuses. Selling a business means making tough decisions. It’s the one time you do NOT want to limit your thinking (thus the half point for being a concept that is a bit abstract).
To a much greater degree than most people think, you have impressive control over the final and most important business transaction of your career: the sale of your company … with nothin’ left on the table.