Selling your business is perhaps the most consequential sale you will ever make. It’s the sum of all your hard work, long hours and investment. Done right, a properly executed sale will pay you dividends well into the future. However, if you miss a step in the selling process you could not only jeopardize the sale of your business, but possibly the business itself.
While many entrepreneurs excel at the art of selling, selling your business is not the same as selling the product or service your business provides.
It has been my experience as a business owner and as a consultant to countless small businesses, that most entrepreneurs have the self-confidence, product knowledge and understanding of their customers to be able to make their pitch and close the sale. However, it has also been my experience that when most entrepreneurs attempt to sell their business, they fail to consider four key components. Mismanage one or more of these components and both the sale of your business and the business itself could be at risk.
It Ain’t Over Until It’s Over
Possibly the most common misstep that an entrepreneur makes when they are attempting to sell their business is cognitive disengagement from the tactical and strategic operation of the business.
I have witnessed this firsthand with businesses I have purchased over the years. In those instances, the seller and I agree on a price and terms of the sale. My team begins its due diligence period. Almost immediately, it becomes apparent that the seller has lost interest in running their business. This manifests itself in various ways; some more subtle than others.
In one case, my seller began littering his desk with vacation brochures for the Bahamas. In another case, the seller’s cognitive disengagement was more pronounced as he was slow to respond to existing customers or even handle requests for proposals. Perhaps more critical was his announcement to his team that employee performance reviews would be postponed for ninety days (the same amount of time allotted for our due diligence).
If you are considering selling your business, you must be fully and mentally engaged until the closing documents are signed and the check is in your hand. Disengaging from your business prior to closing could be the death nell for both the sale of your business, or irreparably harm your business. Yogi Berra was right, “It ain’t over till it’s over.”
To Tell or Not Tell
Selling your business will require a great deal of work on your part. The buyer, the buyer’s broker, the buyer’s bank or a private equity firm will demand that you provide massive amounts of data to support your asking price, validate your financial statements, confirm your customer’s contribution to gross sales or authenticate the work, and provide pay histories of your employees, etc.
As you begin this phase of the sale process, ask yourself this question, “Do I have the ability to gather all of the requested in- formation myself or do I need the help of my staff?” Your answer to this question will determine if you need to share with your employees your plans to sell the business. Before you make that decision, you need to consider what sharing such plans with your employees might mean for the sale of your business and the future of your business if the sale does not close.
I have worked with clients on both sides of this issue. Some want to keep the prospect of the sale a secret; others openly share their plans to exit the business. Both types have met with mixed results that are worthy of further examination.
The seller who keeps the prospect of selling their business a secret puts themselves in isolation. The process of gathering requested data may become more difficult thereby extending the due diligence period. Remember, “Time kills deals.” Moreover, this may compromise the free flow of ideas the seller has historically enjoyed with their employees. If you elect not to share your plans to sell with your employees, prepare yourself for additional work to bring the requested data together.
By contrast, the seller who shares the news of the potential sale with select employees (or all employees) can then engage them to help in the data gathering process. However, this seller runs the risk of losing control of the “selling narrative.” News of a sale generates countless questions from employees like, “What does this mean for my job?,” “Is the company in trouble?,” and/ or “How can the owner just leave us behind?” Remember, “Gossip loves a vacuum.” If you elect to share your plans to sell with some or all of your employees, prepare yourself for transparent and repeated communication with them.
Ask and Answer the Tough Questions
Small businesses are legendary for the care of their employees as they often treat them as extended members of their family and provide them with a level of empathy and concern that is noticeably absent in larger companies. As such, it’s natural and appropriate to consider your team members when you are selling your business. Your relationship with your employees demands that you ask and answer some tough questions. Here are just a few for your consideration:
- “Does it concern me that the buyers want to relocate the business or combine it with their existing operations?”
- “Does it concern me that the buyers have talked about wanting to break up the company into smaller parts?”
- “Do I care that the buyers seem more interested in only select parts of my business rather than the business as a whole?”
- “Do I care that the buyer has a history of lower wage rates for their employees or that they have a higher employee turnover rate?”
- “Will the sale of the business mean greater opportunities for my employees moving forward?”
- “If I don’t sell the business, will my current strategic plans allow for sufficient growth to sustain the future wage and benefit demands of my employees?”
As difficult as these questions might be, I encourage all selling entrepreneurs to balance their answers to the questions above with their answers to these questions:
- “While I am concerned about what will happen to my employees, what personal and/or professional responsibilities do I have to satisfy?”
- “Even if this may not be the ‘perfect buyer with the perfect offer,’ does this offer meet my personal and professional needs?”
I would like to emphasize that there are no right or wrong answers to these questions. The answers for one entrepreneur will not be the answers for another, and that’s okay. The important thing is to engage in the exercise of asking and answering the tough questions to your satisfaction.
The Day After
The due diligence period of any sale is one that can be filled with emotion and uncertainty. The collective focus of the seller and buyer and their respective teams is to arrive at a successful closing. The all-encompassing nature of the due diligence period makes it easy to lose sight of the fact that eventually all of this effort will come to an end, leaving the seller with an important question: “What does the day after the sale look like for me?”
I think it’s a common fantasy for a business owner to envision themselves sitting on a beach somewhere without a care in the world. Experience, however, tells me that more than likely the hard-charging, quasi-workaholic, type-A personality will need to make some personal adjustments to life after ownership.
I closed on the sale of one of my businesses 30 days after the offer was received from the buyer. Yes, you read that correctly—30 days! The entire process was surprisingly smooth, but extremely intense. Perhaps the most intense of my entrepreneurial career. All of this to say that I gave no consideration to what the day after might look like.
For me, the day after proved to be a rather jarring experience. I liken it to driving on the freeway at 80 miles per hour and throwing the car into park. The buyer and I agreed that I would work at the office for a few weeks to help with the transition. On the morning after the closing, I arrived to work at my normal time only to find that my managers and supervisors were engaged in a closed-door meeting, to which I was not invited, with the new owners. All very appropriate and necessary, but for me it was the first indication that my professional life had changed dramatically.
There is an incredible amount to consider when selling your business. As you take the first steps to sell, keep these four key components front of mind, and you will set yourself up for success during and after the sale closing.
By David C. Rhoa, originally published in SBAM’s September/October 2023 issue of Focus magazine
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