M&A is among the most nerve-racking experiences a business owner will endure when exit planning. In preparing to hand off the result of years of hard work and dedication, entrepreneurs must consider not just their emotions but also the best interests of their business’s stakeholders from employees to customers to the extended members of a business’s community.
If you’re looking to sell your business, how can you go about finding the right successor for the right price while maintaining your mental well being and your commitments to stakeholders? Here are six tips for surviving an exit from entrepreneurs who’ve been there before.
1. It’s OK to Sell
The first step in exit planning is admitting that an exit is inevitable (unless you’ve found a cure for mortality).
Mike Stemple, founder of branding and entrepreneurship training firm Inspirer, has led four of his companies to a sale or merger. Having gone through the M&A process multiple times, Stemple reminds entrepreneurs that selling your business is not the same as abandoning it:
“My advice now as a mentor to hundreds of founders in regards to the emotional roller coaster a M&A elicits is simple: not everyone makes the journey. It is OK to sell your company and to end up leaving it as you did your part in its life. You raised it, nurtured it and now someone loves it enough to want to take over and make it theirs.”
Mentally preparing yourself for the day when you can no longer manage your business will make selling a much smoother process. Conducting due diligence in preparation for a future sell will also help during the M&A process.
Key takeaway: Don’t guilt-trip yourself into staying with your business longer than you can – or want – to
2. You Are Not Your Company
Once you’ve accepted the fact that exit planning is inevitable, creating mental boundaries between your personal brand and your business brand is essential. Stemple maintained emotional distance between himself and his last business, a move he claims was the best thing he ever did. “You are not your company,” he said. “Invest in your own personal brand and develop it alongside the company’s so if/when the time comes to part ways, you are known as you and not the founder/CEO of X.”
Key takeaway: Maintaining your personal brand separate from your business will allow you to move on to other things when exit planning
3. Understand Your Business’s Value
What makes your business unique? How will these distinctive features lead to future worth? To help clients fully understand the value of their business when exit planning, Robert F. Dow, partner at Arnall Golden Gregory law firm, asks his clients three questions:
- Do you have a strong customer base, a competitive advantage, a unique product line, a skilled labor force, important intellectual property? How are values assigned to such items in your industry?
- What does a SWOT (strengths, weaknesses, opportunities, threats) analysis of your business reveal?
- What is your business’s cash flow forecast?
According to Dow, it’s essential that business owners answer these three questions before talking with any potential acquirers. “We usually discourage business owners from getting into negotiations with buyers unless they have done the homework to understand the value of the business,” he said.
Key takeaway: When exit planning, examine your business from a buyer’s point of view before entering negotiations
4. Know What to Look for in a Buyer When Exit Planning
Bob Balaban, managing director at investment banking firm Headwaters MB, encourages business owners to draw up a profile of the perfect buyer. In particular, Balaban urges entrepreneurs to consider:
- Access to capital: If you’re concerned about the longevity of your business after the sell, try to choose a buyer with the financial means to weather a storm such as the loss of a major contract or the emergence of a new competitor. “A business buyer who has stretched to the last dollar he can find to make the purchase won’t be able to endure through these issues,” Balaban said.
- Personal fit: What personal strengths will a buyer need to run your business? What values are necessary in a buyer to help your business maintain its relations with employees, customers and the community? “Personal fit is important,” Balaban said, “because the stakeholders of the business will need to live with this person every day”
Key takeaway: Beyond financial considerations, try to sell to the buyer who will mesh with your stakeholders
5. Timing Is Everything
Timing is one of the trickiest aspects of selling a business when exit planning. Sell too soon, and you could throw your employees and customers a real curve ball before your services have reached their prime. Sell too late, and you might miss out on your business’s optimal price point.
Dow names a number of factors that should play into your timing considerations:
- Is the business going through a slump, or has it recently experienced a significant negative event? You may need to wait for some recovery so the ambitious buyer won’t use the negative factors to beat you up on price
- What is happening in the industry and in the markets where you operate?
- Does the business need cleanup work to get it ready for sale?
- What timeline do you need to put in place so that stakeholders are not affected by the sell?
“If you’re going to sell, is now the best time from every perspective?” Dow asks his clients.
Key takeaway: Think about timing from all perspectives
6. The Right Buyer Will Come
When exit planning, finding the right buyer for your business can take months, if not years, of negotiations and waiting. No matter what qualities you’re looking for in a buyer, though, it’s important to keep in mind that the right buyer will come eventually.
Bill Fish, founder and president of ReputationManagement.com, sold his last business in 2006, after five years of starting it up. He and his co-founder aimed to remain a part of the business after its acquisition. Because of this, it was essential that they find a buyer with a similar vision. He said:
“You work so hard to get to a point where your business would be desirable to someone else. Obviously you see dollar signs, but my co-founder and I both wanted to continue to be part of the business going forward, so the right fit was of utmost importance.”
After potential sales fell through, Fish and his partner switched to a banker who took the time to understand the intricacies of their business and the qualities they were looking for in a buyer. Fish and his partner’s patience combined with their banker’s careful considerations resulted in a successful sale.
“Let’s face it: as an entrepreneur, you spend the majority of your life working on your business,” Fish said. “No matter what the payday is, if you don’t see eye to eye with who you would be acquired with, you will be miserable.”
Key takeaway: Don’t settle. With the right tools, you will find the right buyer.
Featured image by Marcin Wichary