Why It Is Critical To Convince Yourself First Why You Are Selling Your Business
Walter Adamson
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It is crucial to keep your original motivation for selling your business at the forefront of your mind as you progress through the preparation and marketing phases of your exit strategy.
Your exit plan provides a guide for all the necessary steps to take to prepare for success. However, you might need to pay more attention to the importance of your exit plan in helping you stay focused on why you decided to sell in the first place - your goals, not the goals for the business .
You do best by exploring and documenting these reasons at the start of your exit journey, ideally 18 months or more ahead of when you would like to consummate a deal.?
The consequence of not doing so is drift.
Drift is dangerous. Drift is stepping off the path which takes you to your ultimate exit - but it is also human nature.
You can tame human nature and contain drift by being clear up-front on your motivations for selling.
Having doubts while selling your business is human nature
When you are on an exit path, especially in the short game towards the end, drift happens because of something going wrong internally. Drift is when timelines have started to suffer, not because of outside things that no one could have anticipated, but because of mismanagement, friction or doubts.
The issues of mismanagement, friction and doubts are all connected because doubts lead to a lack of focus and a lack of focus leads to mismanagement. Where doubts have arisen in your head, as the owner selling the business, everyone supporting your sales process feels this reflection, and they also step off the exit path.
In my experience, drift always happens. It's a part of human nature, mainly because selling a successful business implies that you, as an owner, are a passionate and competent business builder.
You are also unique in your ability to see the potential and special qualities of the business better than anyone else. After all, it is your baby, and you've grown it into what it is today.
As you progress down the exit path, you must spell out your vision in concrete terms - to firm up the forward plan and show a strategic buyer's growth opportunity. After all, demonstrating bankable growth is a crucial deliverable of a proactive exit methodology.
It is very typical that as this growth strategy firms, you will feel the excitement. You will rekindle your entrepreneurial motivation and become enamoured with the chase once again.
As you have initial meetings with potential buyers, where, in effect, you are marketing the future of the business, you start to forget what motivated you to begin the sales process in the first place.
What then happens is that you oversell yourself on what a great opportunity your business presents and begin to waver regarding your decision to sell.
You start thinking - hang on, maybe we can take this business to the next level.
You stop thinking about the personal reasons that convinced you to start down this track. If this happens to you, it's time to get back into the game and refocus yourself on why you want to sell.
Your hesitation in answering this one question can kill the deal
When you oversell yourself on your business' potential and begin to waiver on why you are selling, then you are sailing into troubled waters for many reasons, including:
None of this says that you should never reconsider the sale. As you are advised of more new options, you need to review and confirm your game plan. This reconsideration is best done early on your exit path, which is yet another reason to start earlier rather than later.
One of the first and most important questions a buyer will ask is, "Why does the owner want to sell?".
And?more important than all three negative outcomes above?is that if your wavering causes you to misstep in answering this one key question from potential buyers, you could kill the prospect of a deal right there and then.
The buyer will naturally be anxious about many things concerning your business's purchase and will need a good answer to this question. The less rigorously you have thought through the reasons up-front, the more likely you will have second thoughts as you get closer to the sale.
There are many rational reasons why you may want to sell, and it is essential to have a well-thought-out reason before moving forward down an exit path. A buyer will want to know why. You must give a convincing answer to ensure the sale is successful.
Take the buyer's perspective on why you want to sell
As much as it is crucial to establish a well-thought-out reason for selling your business for your own sake and for the sake of not drifting, it is equally important to consider the buyer's point of view.
For example, saying that you need to get out because you are exhausted raises red flags about how you manage, e.g. why the business cannot work without you and the lack of systems and scaling you have established within the company.
Saying, for example, that you want to get out because of divorce raises questions about how well you have separated your private wealth from the business wealth. Presumably, a profitable business would be an asset to the financial security of all parties if it were appropriately structured.
A buyer wants to know that you have a clear and concise motivation for selling and that you have made the decision thoughtfully and carefully.
Having a well-reasoned explanation for selling can give the buyer confidence that the business is being sold for the right reasons.
And buyers always drill down on why entrepreneurs want to sell their businesses?now. So your answer to "Why now?" should be similarly well-reasoned and supported by logic and data.
No right or wrong reason for owners wanting to sell their business
There will come a time when you and every other business owner will need to sell their company. There is no "right" or "wrong" reason for wanting to sell, but some reasons resonate better with potential buyers than others. I mentioned a couple of red flag reasons above.
The right time to sell is based on various reasons, such as economic conditions, industry trends, personal situations, financial constraints on growth, or professional considerations.
You may believe that mentioning that you are selling to start a new business would be a bad reason to give a potential buyer.?
In fact, it is a kind of folklore that most reasons for selling are tied to the owner's retirement, yet this is rarely the case.
While nearly a quarter of (US) middle market business owners?who sold all or part of their businesses ?in the past 24 months said they will use some proceeds to make retirement plan contributions, only 12% cite retirement or exit opportunity as a key factor in the sale. An even smaller proportion — 7% — lists retirement as the primary impetus for the transaction.
In most cases, personal reasons for selling have much more to do with gaining access to funds for other investment or business opportunities — the top two destinations for money received from the sale.
In other words, to explain to prospective buyers that you are not looking to finish your career, but rather you are merely at a stage where you wish to try something new, is within the bounds of their experience—provided you explain it the right way.
Takeaway - Be clear about your personal needs when selling
It may seem that taking the time to reflect on your motivation for exiting and documenting the reasons is a time-consuming and unnecessary distraction from getting on with making your business investor-ready.
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However, experience shows, repeatedly, that not being clear about your motivation to sell, and not confirming the reasons with all your stakeholders, inevitably leads to delays and distraction further down the path. And unfortunately, these delays and distractions almost always cause buyers to have second thoughts - to lower their offer or to walk away.
It is human nature to have doubts. The more you examine and resolve your motivations at the beginning of the journey, the more capacity you will have to contain those doubts and to not fall off your exit path.
If you are not 100% committed to actually selling your business, you should wait to begin the process.
It is better for everyone concerned if you spend the time to clarify your personal needs and your motivation upfront.
In most cases, your original decision to sell was arrived at thoughtfully and with very good reasons. Referring back to an exit plan where you have documented those reasons will help you stay focused on your objective.
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This Week's Reading
Two articles from my reading list to help you grow and exit successfully.
Article 1: Preparing to sell your business: how to prepare emotionally
Business owners are often advised to put their feelings aside when considering an acquisition. While this may be the case when it comes to closing a deal, it's important to consider the emotional and personal aspects involved in selling a business at any stage of the process.
For most owners, selling a business isn't just about making the best financial offer; it's also about the emotional of distancing themselves from what you've spent so long working on.
With that in mind, the authors encourage business owners to think about an exit initially in terms of how it will change your daily personal life and routines, for example:
There are many reasons why you might want to sell their business. For some, it offers a financial return that can be used to pursue other passions. For others, running your company is your passion and you want to continue doing so. Wherever you fit, considering how your business impacts your personal life is the cornerstone of the entire exit planning experience.
Source: firstrepublic.com
?Article 2: Ultimate business exit strategy: preparing yourself emotionally
When you are ready to sell your business and move forward with your next chapter, it is important to think about your emotions, says John Grillos in this article. This includes being honest with yourself about what you really want out of the sale process.
You don't want to make emotional decisions based on fear or regret. Instead, you want to set your mindset early on so that you can approach the process with clarity and confidence.
The first step in preparing yourself emotionally is taking a step back and considering how selling your business can positively affect your life. What do you want to accomplish? How does selling your business help you achieve those goals?
You should also think about how business issues may keep you awake at night. If there are problems that come up during the sale process, how will you handle them? Will you be able to work through them effectively?
Finally, you should consider how selling your business can improve your relationships with loved ones. Selling your business allows you to give more attention to the people you care about most.
Source: johnmgrillos.com
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This Week's 3 Business Books
Free for you as a subscriber to my newsletter: Three of the world's most essential and popular business books in acclaimed 12-minute videos. Listen, or watch and listen to take advantage of another big idea.
Book 1: Fanatical Prospecting by Jeb Blount (watch on Monday-Tuesday)
After Facebook, Twitter, and LinkedIn arrived on the scene, there was a lot of hope that social media would change the profession of sales forever. No longer would a salesperson have to pick up the phone and cold-call prospects. After all, all those old-school sales tactics don't work anymore, right? Wrong.
Jeb Blount is here to tell us that not only do the same techniques that have always worked still produce results, but they might also produce even more today because so many of your competitors are off chasing the latest bright shiny object.?
Book 2:?Onward by Howard Schultz (watch on Wednesday-Thursday)
When Howard Schultz set out on business, it was not his objective to only make money. Instead, he wanted to build a great, enduring company: a balance between revenues and relationships. The result we all know was Starbucks. However, the Starbucks journey has not always been positive. Over time, an obsession on growth tainted the company and Starbucks lost its sparkle.
In his biographical book, Onward, Schultz shares with us the challenges he faces and actions taken to reinstate the third place in our lives. So, in less time than it takes to enjoy a skinny, extra-hot caramel macchiato, join us to find out how we can learn from Starbucks' soul-saving steps.
Book 3:?Wooden on Leadership by John Wooden (watch on Friday-Sunday)
"Am I the biggest? The best? The fastest?" These are questions that basketball Coach John Wooden suggests we avoid as leaders. While we all would like positive answers to these challenges, Wooden suggests they are detrimental to being a great leader.
So what should we do? Wooden offers us his Leadership Pyramid: Fifteen progressive characteristics he applied throughout his lengthy NBA career that describe his key facets of leadership. Join us for ten minutes to discover the building blocks for leadership success.
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? Previous Newsletter:?Understanding the Force Multiplier Effect of Employee Cost Savings When On An Exit Path
? Next Newsletter: Timing Makes Deals, and Timing Kills Deals - How To Avoid Seller's Remorse
Keep winning, Walter
P.S.?If you know you’re ready… it might be time to explore my?Proactive Exit Mastery?model , to see how you might capture the ultimate exit value for your business.?If you'd like to know a bit more, just message me or comment below with "Ultimate Exit Value".