After weeks of negotiation you’ve finally signed a term sheet to sell your business.
Deal done! Let’s get ready to open the champagne.
Not so fast. You could be about to embark on the ride of your life.
Most business exits are an ever changing mix of elation, frustration, high energy, exhaustion, excitement and overwhelming stress for business owners – the emotional roller-coaster.
There are four “out of left field issues” that can derail a business exit. The emotional roller coaster is our left field issue #4. You can’t avoid the emotional roller-coaster, but it helps if you’re ready to deal with the key things that cause it.
Don’t underestimate the importance of dealing with emotional issues during your business exit. I’ve seen plenty of extremely capable and patient business owners driven to absolute frustration and despair during their exit process.
In this post, we’ll look at the three most common sources of stress during your business exit.
Your constantly shifting sale price
The price you get for your business is a key outcome for most business owners, but often one of the hardest things to lock down.
If you have a good team, your advisers will help you reach an initial view about a reasonably achievable target sale price. However, you won’t know whether it’s a truly realistic price until you start engaging with potential buyers. In my experience, indicative offers from potential buyers are generally lower than most business owners expect.
You can often push the sale price up if you have multiple interested buyers, but once you have a firm indicative offer from a potential buyer, the price is highly likely to go down again as a result of your buyer chipping away while negotiating your sale contract and doing their due diligence.
The key point is your sale price will move around a lot during your sale process, and that’s always stressful.
The purpose of due diligence is to help your buyer understand your business and properly assess the risks involved in buying it. While that sounds fair enough, it won’t feel like that to you. If you have a reasonable-sized business, the buyer and their advisers will be crawling all over your business for weeks, often months.
They will poke and prod every part of your business and ask for the same information in multiple ways. Most of the lower-level due diligence work will be done by junior lawyers, accountants and analysts who have no feel at all for your business, ask inane questions about how and why you run things the way you do and want you to explain and clarify things for them over and over again.
It will become more and more frustrating, invasive and time consuming. Towards the end of this process, you will start to see some of the more senior people from the buyer again together with their more heavy hitting advisers. And they will want to talk with you about some of the “problems” they’ve found during due diligence.
Around now everything starts to get really stressful. Not only will you start to feel like you and your business are being criticized and attacked from all angles, but conversations will start about the need to “modify your deal”.
The buyer will tell you the initial purchase price needs to be revised down and that you need to provide additional “comfort” in areas like warranties. By this stage, you’ll be so heavily committed to your sale process it will become difficult to resist compromising.
One way to reduce the impact of due diligence, particularly if you are likely to sell to a larger buyer, is to undertake what is known as a “vendor due diligence”, so you can uncover and resolve any problems yourself before you start your business exit. If undertaken by capable and experienced advisers, this can significantly decrease the due diligence work your buyer needs to do and shorten the process.
Will your deal tip over?
The blunt reality is lots of business exit deals tip over. And if your deal does fall through, you’ll be back to running your business again, exhausted from a failed sale process, with lots of adviser fees to pay and your tail between your legs. The prospect of this happening can weigh heavily on your mind, particularly once you are deep into a sale process.
In my experience with hundreds of business exits, the emotional roller coaster can’t be avoided, but being prepared for it does go a long way.
In our next post we’ll look at how to prepare for and deal with the emotions that can often arise after your business exit as a result of not selling for as much as you were hoping for, feelings of seller’s remorse or losing control of the legacy in your business.