Posted: February 08, 2011
The top four causes of seller’s remorse
And how to cope with themBy David Tolson
The day you sell your business should be one of the greatest days of your life. Financial independence (wealth), freedom from employee responsibility, and the relief of no longer having the operational responsibility are huge pressures that are frequently removed on the day of sale.
On occasion, however, the sentimentality and romantic notion of selling are dimmed by a concept we call seller's remorse. Seller's remorse arises when a seller completes the sale of his/her business and suddenly is faced with the "oh no, what did I just do?" thought. From our experience, this thought and the general anxiety and emotion of the selling process can be mitigated if not entirely eliminated through planning. Here are the more common causes of seller's remorse and what to do about it.
1. Did I leave money on the table? This is one of the biggest fears that face most sellers. For most business owners, the business is the greatest asset that we have. It has provided food, shelter, and financial security for not only its owners, but its employees as well. The last thing a business owner wants is to awaken at 3am the morning after closing wondering if they got the best deal.
To resolve this issue, an exhaustive search of buyers, including an exhaustive communication effort with those buyers is required. After all, if you are working with one and only one buyer you may get a deal done, but you won't know if it's the best deal. Working with multiple buyers in a thorough process will provide you with the context of what the market thinks about your business (and what the true market value is). If done the right way, you can keep it quiet and complete it quickly.
2. Every deal will die multiple times - prepare for it. Don't become anchored or attached to the deal on the table. Most sellers of businesses will become romantically attached to the notion of selling their business about the time the LOI (letter of intent) is in place. What follows in due diligence can be time consuming with high levels of aggravation. The due diligence process is a place where things can go terribly wrong in a deal. Many of these issues are caused by poor preparation both emotionally and process wise. It is important that you continue to run the business as if it is not for sale and rely on your team (particularly your investment banker and your attorney) to help manage this process. We also strongly suggest being well prepared for due diligence by preparing before you get there - having your documents and records organized and ready to be inspected makes your life and the process of due diligence easier. Relying on your team, their experience, and their wisdom can be invaluable at this point.
3. Know what you don't know - Making sure that a sale will meet your overall requirements is essential; this includes your financial future. A strong financial advisor will earn their keep by helping you understand the financial ramifications of the deal and its structure, on your personal wealth goals. How much will you get at the closing table, net of fees and taxes? Notice the concept "at the closing table." Many deals may have some contingent payment in the form of notes or earn outs. Running an analysis of how the deal meets your requirements based on just the closing amount and the contingent amount(s) can help visualize the flow of cash to you. More importantly, understanding what happens in a "worst case" scenario where you don't get notes or earn-outs can help ease the anxiety around the transaction. Your team and in particular, your financial advisor, should have been working with you in advance of getting to this point. Once the investment banker has identified value, it is important to make sure that the "deal" will get you what you want. Put another way, will you be able to retire the way that you want without compromise? Does the deal structure, combined with the valuation, meet or exceed your stated financial goals? If these questions are not answered prior to closing, the chances of that deal going through are minimal.
4. What will I do with my time? One of the areas we explore with our prospects and clients is outside business interests. Many of our clients find it very strange that we will ask questions in this area. From our experience, we've found that a lack of hobbies and / or outside interests can often lead to a busted deal. Generally speaking, these outside interests help the business owner go from the frenetic pace of running the business daily to no longer having the obligation or the requirement to even go into the office. Nowadays, many deals require that the business owner help through a transition period that lasting several months to several years. Eventually, however, the requirement of having to show up every day goes away and the business owner is left with the next chapter of his or her life.
These issues are real. For many business owners who have spent significant time growing their business, walking away from it becomes a challenging and emotionally charged event, no matter what the size of the check is. Through careful planning and reliance on your team of advisors, you can minimize (dare we say eliminate) seller's remorse and make the day you sell your business one of the greatest days of your life!
David Tolson is Managing Director of CapitalValue Advisors, LLC. Since 1992 David has worked in small and middle market based businesses in operations, sales, and marketing, and has extensive experience in appraisals and mergers and acquisition. He is widely regarded as an expert in middle market private company valuation. He has conducted numerous seminars, taught senior level university courses in organizational management, and been featured as a special speaker at the graduate level on strategic planning and acquisition strategies at both Colorado State University and the University of Colorado. Additionally, he is the co-author, along with Chris Younger, of the book Harvest: The Definitive Guide To Selling Your Company.