Because the sale of a business is usually an emotional experience, it is best to involve a trusted adviser (wealth manager, CPA, lawyer, investment banker or consultant) who has been through this process many times before.
It is difficult to make rational, logical decisions in an emotionally charged atmosphere and it can be helpful to have a third party involved as a facilitator as you work out the details of the deal structure.
Although finding a reliable advisor who is also a good fit for you and your business might prove tricky, do not be discouraged. You will be able to find a top financial advisor perfect for you, whether you are based in San Francisco or Miami. You can find San Francisco advisors here and Miami financial advisors here.
Stories Told from Experience
Key building blocks:
- Begin your process by developing your vision for your dream ending.
- Strategy, culture and expectations are the three main reasons deals fail.
- Be prepared to walk away from the transaction if it no longer fits your goals.
We cannot emphasize enough the importance of the deal structure. Many CEOs go through the process of identifying buyers and even negotiating the purchase price, but fail to consummate the transaction because of an inability to agree to terms.
Even when the terms are agreed to, if they are not considered carefully, a deal can be put together that is ultimately unsuccessful because it is not affordable for a buyer or neglects to address critical issues for one side of the transaction or the other.
You will need to make sure that no matter what, the deal will be beneficial to you in more ways than one. This process should not be rushed, and you should have adequate time to mull over the terms and potential holes in your discussion or upcoming deal. Enlisting the help of a wealth manager can also offer insight.
Once preliminary terms have been agreed upon between you and a potential buyer, you should elicit a letter of intent, which outlines what you have agreed to on a preliminary basis in terms of price, structure and the transition process.
The letter of intent is not generally a binding agreement, but provides a framework for going forward. It could also include a “breakup” penalty if the buyer decides to walk away. If the letter of intent was binding, it would be as legal and enforceable as a purchase agreement.
Both the letter of intent and “breakup” penalty are useful for a CEO in particular, as you’ll be able to understand the process a bit easier.
Once you close the sale, the real work begins for most CEOs. The buyer will likely have some expectation that you will help facilitate the transition. However, this is both a normal and very common expectation, so embrace it if you can.
Brace yourself emotionally for this experience. The sale of a business is usually emotionally difficult for the CEO, particularly if he or she has devoted sweat, tears and years to building the business.
Any emotions you may feel during this process are completely normal. The majority of CEOs have experienced similar emotions at one time in their career or another, so embrace the emotion as best you can. You are not alone in these sentiments.
It is also likely that your employees and customers may have an emotional commitment you will underestimate. Your gain in selling your business is their loss. The success of your ability to transfer these relationships to the buyer will in large part depend on your ability and preparation to honestly help employees and customers understand “what’s in it for them” in this change.
Commit to this transition process with as much vigor as you did when building your business to ensure that the legacy you leave with your customers, your employees and your professional community is how you want to be remembered.
This legacy — including how your professional network will remember you — will forever affect your career, no matter where you go in the next few years. That is precisely why your attitude during this process matters. If you are having trouble finding strength during the transition process, remember to take time for yourself, too. Having a clear head can make all the difference.
Mergers and acquisitions of businesses fail for three primary reasons:
- No clear strategy as to why the parties should complete the deal.
- Cultures and business philosophies are incompatible.
- Expectations of the parties are unrealistic.
You must be prepared to walk away from the transaction if it is no longer within your realm of reasonableness or aligned with your exit strategy.
Christopher G. Snyder and Haitham “Hutch” E. Ashoo are principals of Pillar Financial Services in Walnut Creek. Contact them at 925-356-6780.