When is it time to sell your business? I met with a long-term client last week. We’ve known each other for many years. He’s always been direct and to the point when dealing with me about his business.
He’s an entrepreneur and has built a strong, profitable business over the past 20 years. This was the first time he’s closed his office door when we met. He wanted to have a highly confidential conversation. He wanted to learn more about what it would take to sell his business.
This conversation is not completely unexpected. He had led and managed several successful larger divisions of publicly traded companies in his corporate career. Then the entrepreneurial bug caught him when a key customer approached him about coming to work for them as President of their firm.
He took the role and, well, the rest is history, until today. First, as business leader and then as an owner. He took this company to the next level, growing the business to well over 100 million dollars year in revenue. His life was invested in the business.
Clients hire me for three different reasons. One is because I’ve been involved in many business acquisitions for clients and partner organizations. I know what to look for. Second, I have a great network of people who are always looking for good business to buy or invest in. I know who to look for. Third, they want me to help grow their business. I know how to get a better price.
I understand the process of what it takes to successfully sell a privately held business. I know the concerns entrepreneurs face when they sell. This makes me very popular at social gatherings and on golf courses.
I’m always prepared to share freely with my clients this unique aspect of my executive background. Finding the right buyer for your business is something I’ve always enjoyed doing. Ever since I helped sell my first business back in the 1980s to the wrong buyer at the wrong price.
The company for which I was a general manager was acquired by a private equity banker. I wasn’t prepared for how a private equity partner would handle the transaction. How the deal happened and what I learned would change how I coach executives and entrepreneurs forever.
What did my client need to know to successfully sell the business? Here are the key concepts I shared with my client that day.
The first key: It typically takes 18-24 months to prepare your business for sale. If you want to get the best price when you sell, you must be willing to invest time and money to make your business more attractive to buyers. Its not like residential real estate where you can very quickly get your house up for sale. More about this on a future blog.
The second key: Over 50% of people who sell their businesses today are baby boomers. Over 60% are over age 50. They have invested a significant part of their lives building their business. What it takes to sell a business is different than what it takes to build a great business.
The third key: Understand that what a buyer is looking for in a business may be different than what you think you’re selling. Learning how, when, and why buyers buy is critical to selling your business successfully. It’s not always what you think. That’s where the gold is!
When you sell a business, it will be like riding a roller coaster that never seems to end. At different stages of the deal either party experiences a wide range of emotions going from high to despair very quickly, depending what is happening in the deal. Surround yourself with emotionally intelligent leaders who can help you bring the deal to a successful conclusion.
The final key: Less than 10% of deals end up closing successfully. I’ve heard significantly higher numbers when dealing with different types of acquisitions. I’m not sure I would agree.
Less than 50% of acquisitions are considered a success by the buying executives after two years. This makes buyers more reluctant to buy and sellers to sell. There are costs in buying and selling a business that are not recoverable if the deal fails to close. These bills can be staggering if you choose the wrong professionals to help you.
I attribute it to the fact that most privately-held and family business executives have little experience in buying and selling businesses. Not understanding the process side of deal making leads to many costly errors and failures for Small and Mid-Market organizations. Having a great CFO can provide insurance to your selling strategy. They can also help you get the best deal for your business.
Selling the business is the biggest sale of an entrepreneur’s career. Add to the entrepreneur’s increasing stress levels that over 70% of their net worth may be tied into their business. It’s a formula for failure.
After my client heard these facts, was he still anxious to sell his business? He looked at me and asked for any advice to increase his odds.
I answered that it’s easy. Just begin with the end in mind when you decide to sell your business. Sounds simple, but it can be very hard to implement. Come back next week for the advice I gave him.
Want to know more about selling your business? You might enjoy What’s Your Business’s Hidden Assets?
See you two weeks.