Doing Everything Will Do You In When Selling Your Business

Yes We Know You’re Important…

But Do You Want To Be So Important You Decrease The Value of Your Business?

It is one of the insidious aspects of entrepreneurship.  You can’t be successful building a business up from scratch unless you have the ability and the will power to make things happen.  Yet this same trait can undermine the ultimate value of the owner’s business.

This owner trait usually leads to a high, high degree of personal involvement of the founder in the activities of the business. There are owners who maintain this behavior pattern even when their businesses grow to very respectable sizes.  In fact these owners often find that they can never find anyone who will do the jobs as good as they can do them.  They find that they can get better results if they continue to do the important functions within the business themselves.  This can work very well for these owners.  Oh, they are frustrated at times that they can’t get quality talent.  And they feel trapped at times because they really can never get away from the business.  But all in all, it’s a system that works and allows the owner to have a successful business.  Until the day comes that they decide they want to sell and get out.

Your Personal Role Affects Your Business Sale

The owner who is unprepared and unschooled in the ways of business sales suddenly finds something very unpleasant.  Buyers of businesses don’t want businesses that are dependent on their owners!  Buyers believe only bad things can happen in these situations.  If the owner leaves after the close, all the functions the owner was doing, suddenly are being done by people who really don’t know what they’re doing.  Not a recipe for success.  If they keep the owner on after buying him out, they fear the owner will be in mental retirement…doing the jobs but not at the level that the owner would have done when he or she had all the financial risk.  Not a recipe for success.

So how do buyers respond to these situations?  They discount the price they are willing to pay.  The make the deals contingent on the actual performance of the business post purchase.  Or they just walk away from the deal.

 

What You Can Do

If you as an owner are serious about wanting to sell your business for a full price, you must look at your role and the roles of others in your firm.  If the performance of your role is critical to the success of your business, you need to at a minimum fully document the role and ideally build redundancy into your personnel.  This is neither easy, quick, nor inexpensive.  But the return on that investment can be the difference between a successful sale or not.

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Posted in Exit/Succession