Posted: November 01, 2011
Preparing for business battle
Selling a company is a processChris Younger
"The general who wins a battle makes many calculations in his temple before the battle is fought." Sun Tzu, The Art of War.
At least once or twice a week, I talk with a business owner who wants to sell his company. The reasons are varied, of course, but they all believe they want to sell. In most cases, they haven't ever bought or sold a company, so the entire process is foreign to them and they are seeking direction. On occasion, being self-sufficient, they may have already started discussions with potential buyers - these are the situations that give an investment banker pause, of course.
Selling a business is a process - like any other business process, if it is executed according to well-defined and tested steps and procedures by someone with a lot of relevant experience, you tend to get predictable results. Conversely, if it is executed on an ad hoc basis by someone with limited or no experience, you also tend to get predictable results.
Having managed and been involved in a lot of transactions, I have been witness to a lot of "bad movies" when it comes to selling a company. These "bad movies" usually end up costing the business owner dearly, particularly when you consider that a business is usually its owner's largest asset. Most of these situations, however, were preventable had the business owner really spent time constructing a detailed plan with clear objectives, and built a team of competent professionals around him. Selling a business involves a lot of different steps and processes, but the first and most important part of the process is goal setting.
In probably half of the conversations I have with business owners who are looking to sell, it is clear that they have not given sufficient thought to their desired end result. The end goal, or "what is perfect", involves not just money, but also the life they are seeking after a transaction. For many business owners, while the concept of "retirement" might sound appealing (particularly in times of stress, which we are seeing more of these days), it is often a mismatch with their personalities. Unless they have a purpose post-closing that will drive their day-to-day activities, they will likely struggle with unstructured days and no meaningful activity. Running a business is hard work, but it provides a business owner with challenges, purpose, meaning and personal interaction. Understanding and envisioning the ideal post-closing life requires some careful thought and consideration, but it is a necessary part of the plan if you want to succeed with a transaction. You ought to be able to answer questions like: What will I be doing on a daily basis? Who will I be working with/for, and what characteristics am I seeking in these people? Will I have a purpose or objective in my work? What will happen to my employees, customers, partners and brand?
Business owners do not sell for money - they sell for what that money makes possible that is not possible today. Often a business owner is seeking "security" or the ability to eliminate worry over money in their life. But in order to eliminate worry, you need to understand what sort of demands your lifestyle places and will place on your financial resources - this also requires some careful thought and planning. If it is done well, a business owner can sign the closing documents for a sale with confidence that their financial needs will be met - without this planning, being at the closing table can be quite unsettling.
Obviously, the sale of a business is about much more than setting goals and objectives, but without these guideposts, the entire process can fail to produce what is really needed to make it a success for the business owner. Knowing your target makes it a lot more likely you will hit it, and spending careful time up front defining your qualitative and quantitative objectives will give you a much better chance of being successful with your transaction. Not knowing or being unclear about what you want to accomplish will dramatically decrease your odds of success, and in many cases will get in the way of getting any deal done because you won't have the confidence required to close it. As they say in woodworking, "Measure Twice, Cut Once."
Chris Younger is Managing Director of CapitalValue Advisors, LLC (www.capitalvalue.net). Chris has over 20 years of experience in structuring deals and managing businesses, sales and operations. He was the co-founder and president of a 4,200-employee telecommunications company, has purchased and sold over 30 businesses as a principal and investor, and has been an advisor to hundreds of companies. Additionally, he is the co-author with David Tolson of the book Harvest: The Definitive Guide To Selling Your Company, available on Amazon. He can be contacted at firstname.lastname@example.org.
Chris Younger is the co-author of Harvest: The Definitive Guide to Selling Your Company and Managing Director of CapitalValue Advisors He can be reached at email@example.com. Visit www.harvestthebook.com for further information.