Before you even think about the steps needed to sell your business, you need to get prepared personally. This means be ready:
- Emotionally
- Financially
- Family Wise
Realize every business owner thinks about selling, even if they don’t talk about it. If you are reading this book and thinking you should create a plan to sell your business, you are in the top 10 percent of owners. Years ago, the Wall Street Journal published an article on a study that showed only 10 percent of medium-size businesses were ready to sell for full value.
We, John and Jessica, with our combined thirty-six years of mergers and acquisitions (M&A) experience, have talked with thousands of business owners and agree with the Journal’s assessment that only 10 percent of businesses have a solid plan and are ready to sell for full value. It’s rare to see a company prepared to sell with an owner who is also ready.
The analogy we like to use is: Most owners don’t get up one day and think, I want to sell my business in three to five years so let me turn up the dimmer switch so the business is bright and shiny for buyers. In reality, they get up and say, “I’m ready. Flip the switch. Let’s sell.”
Owning and operating a business can be:
- Rewarding
- Stressful
- Invigorating
- Discouraging
- Exciting
- Boring
- Stimulating
- Challenging
- Hard
- Better than Being an Employee
All at the same time.
You can’t decide to sell because of a bad day, week, or month (and especially a bad year since that’s never the time to sell).
Ask yourself so you’re ready to answer the following question when a buyer asks it:
“Why are you selling?”
The answer can make or break a deal, and you don’t want to blow a deal with a great buyer because you aren’t prepared. We’ll provide a lot more on the good and bad reasons to sell shortly.
Let’s start with why you would want to own a business. Over the years, we’ve asked 300-plus audiences why they wanted to own a business. The top answers:
- Control
- Independence
- Financial (Income and Equity)
- Creativity
- Reap the Benefits of My Hard Work (Instead of Shareholders Doing So)
- Be the Boss
- Flexibility
Those are the reasons individual buyers often have for buying your business. When you are large enough for institutional/professional buyers, then like private equity, it’s more about growth and earnings.
I hope fun was on your list when you started or bought your company. If it’s not fun, why do it? This is not like getting a job, then not liking it, and getting a new job.
Whether it’s still fun or not, as you think about selling and exiting, start by answering the following:
What’s my next great adventure?
What does your spouse want your next great adventure to be? That may be an even more important question.
We have three clarifying questions we like to ask owners who are thinking about selling after we discuss why they are thinking of selling. The first is “Why are you selling?” The second is “What’s your next great adventure?” and the third is:
If your next great adventure is retirement, does your spouse want you around 24/7?
And yes, some owners have changed their immediate plans when asked these two questions.
He Did What?
One time, a business owner hired us to facilitate selling to a buyer team who had approached him. We had discussions, answered questions, provided information, etc. When the prospective buyer made a nice offer, our client said, “Well, I guess I better tell my wife.”
She exploded. The main issue was the lack of trust she felt because her husband hadn’t told her he was approached by the buyers. Once she had calmed down a little, we had a meeting with the couple’s CPA. The wife asked, “What if I refuse to sign the contract?” and stormed out of the room.
The sale didn’t happen. It took the wife five years to get over the lack of trust. By that time, the company’s value was lower because the husband had become more interested in fishing than the business.
This article is an excerpt from our book, Exit With Style, Grace, and More Money © John Martinka with Jessica Martinka 2024
