My last three posts have focused on Holly Hunter and her business sale that went bad. I want to thank Ms. Hunter for allowing her story to be told. Although she made some mistakes, she was willing to talk about them in the hope that others might learn from her experience.
But those mistakes are hardly unique to Ms. Hunter. In fact, many business owners have had similar experiences. The most important step owners can take when they think about selling their business is to make sure they understand the sales process. Once you start down the road, you’ll enter an alternate universe where the unexpected becomes the norm. Dealing with the unexpected is easier if you follow best practices.
If you decide the time is right to sell, here are 10 lessons that owners like Ms. Hunter have learned the hard way.
1. Hire an experienced team of advisers. You have spent years building your business, and you usually get only one shot at selling it. Having a team of advisers — an accountant, a business intermediary or broker, an attorney, a financial adviser and a business generalist — who have been down this road many times is crucial.
2. Use an intermediary to sell your business. Going through the sale of your business can be very difficult. You need an experienced intermediary or broker who will speak with the other party and represent you and only you in the sales process. Sellers who represent themselves almost always make mistakes that cost them time and money. This is not a time to cut corners in professional fees.
3. Make sure your advisers work only for you. As we saw with Ms. Hunter, her business broker was representing both sides of the deal. When this happens, the broker usually ends up working for no one — and problems occur.
4. Accept that the person who buys your business will change it. Most buyers have their own ideas about how things should be done. If your sale involves an earnout or seller financing, you want to make sure the seller’s actions won’t limit your ability to get paid any deferred money that is owed you.
5. Make sure you tie your most important employees to the business. Have them sign employee agreements that can be transferred to the new owner. The new owners may want you to stick around for a transition period, but they will want your main people to stay longer. Making sure they stay and don’t disrupt the company while it’s in transition is crucial to a successful sale.
6. Be sure your business continues to run well throughout the sales process — even when the sale becomes an all-consuming project. If sales fall through and the company falters while the owner is selling the company, it can hurt or even ruin a sale.
7. Be prepared for due diligence. It can feel like a colonoscopy and its real purpose may be to help buyers reduce the price they have to pay, but there is no getting around it. When businesses are getting ready to sell, I recommend that they go through a mock due diligence process. This can help you figure out where your company’s weak points are and allow you to prepare responses for a potential buyer.
8. Get a personal financial plan done before trying to sell. One of the most common reasons seller’s remorse exists is that sellers often find out that they didn’t end up with enough money to reach their goals. A financial plan will help you determine how much money you need and set reasonable expectations.
9. Know what you will do with yourself after you sell the business. I’ve seen many sellers lose their way in life when they have no place to go. Before the sale, you were most likely spending between 40 and 60 hours a week at your business. You need to find a way to fill that time meaningfully.
10. Make sure you follow best practices even for the little things. Start, for example, by making all interested parties sign a non-disclosure agreement that has teeth. If possible, have an offering memorandum produced. Have a letter of intent in place with your buyer before you start to show sensitive corporate materials. Have a purchase and sales agreement that lays out the terms of the sale but also protects you after the sale from being sued by the buyer, the government or regulatory agencies.
Following the items above does not guarantee a happy outcome. But if you know what you’re getting into and have taken the time to follow best practices, you’ll be more likely to get the result you want. Remember, at the end of the day, it’s about using common sense. As we’ve seen over the last several weeks, it’s easy for common sense to go out the window in a business sale.
What have I missed in this list? What do you think are the most important things to check off as you sell a business?
Josh Patrick is a founder and principal at Stage 2 Planning Partners, where he works with private business owners on creating personal and business value.
You're the Boss Blog: Ten Hard-Earned Lessons About Selling a Business
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You're the Boss Blog: Ten Hard-Earned Lessons About Selling a Business
