Tiredness. Weariness. Exhaustion.
There are four “out of left field” issues that can derail your business exit. Plain old fashioned fatigue is left field issue #2.
Much like left field issue #1 (performance earn-outs), fatigue can creep up on you and start having a major impact before you realize it. However, if you're aware of the potential impact of fatigue, you can plan and get ready to deal with it so it doesn’t compromise your business exit outcome.
There are two types of fatigue that can have a critical impact on your business exit: business fatigue and deal fatigue.
When you first start a business you’re enthusiastic, optimistic, and energetic. You keep trying new things, push through problems and are energized to keep going even when it gets tough.
However, over time it’s common to get ground down by the burden of owning and running a business. Your enthusiasm wanes, energy levels ﬂag, and your ability to be creative in your business can also begin to fade.
“So, why do you want to sell your business?”
This innocuous-sounding question will always be asked at some point by potential buyers. It will cost you more than anything else during your sale process if you don’t answer it well.
Does a buyer want to hear you’re well and truly over your business, that you’ve lost all your enthusiasm and just want to sell and go play golf? Of course not!
They want to hear that you see great potential for your business in their hands, and that you’re happy to stay on for a while to help them realize its true value as quickly as possible.
What happens though is often the exact opposite. By the time many owners start their exit they have a serious case of business fatigue and do just want to sell their business and get out. Shrewd buyers spot this in a heartbeat and make you pay in the form of a reduced sale price for your business.
Once you factor in getting ready to sell, negotiating with potential buyers, and potentially working for the buyer for several years under an earn-out arrangement it can take a long time to get completely clear of your business.
To avoid the negative impact of business fatigue during your business exit, you often need to get started on your exit much earlier than you think.
The other type of fatigue is “deal fatigue”. Many business owners, particularly if it’s their ﬁrst time selling a business, completely underestimate the magnitude of the exercise and the impact it will have on them.
If you have a reasonable-sized business and you’re selling to a larger business or a listed company, your business sale will inevitably be a long, draining process.
The key factors that contribute to deal fatigue are:
- due diligence – commercial, ﬁnancial and legal due diligence. This is an intensive, disruptive process. It’s also often used as a mechanism by aggressive buyers to push down the sale price for your business
- the deal negotiation process, as your sale documents go backwards and forwards between your lawyer and the buyer’s lawyer
- the escalating costs of your accountant, lawyer and other advisers as you get deeper into the sale process
- continuing to run your business proﬁtably while also working on your exit.
I often see business owners make signiﬁcant compromises late in their sale process due to deal fatigue, which is sometimes deliberately contributed to by savvy buyers.
While you can’t avoid the above processes, you want to minimize the extent to which they result in deal fatigue. The best way to achieve this is to gain a good understanding of what’s involved beforehand and prepare for them.
In our next post, we will look at how to deal with the third “out of left field” issue that can trip you up: an unsolicited offer for your business.
If this post has resonated with you or someone in your circles, make sure to get in touch with us here so we can help you get a better business exit.