What to Expect when Selling a Business for the First Time
What to Expect when Selling a Business for the First Time
You and your business may nearly be alter egos and it may be nearly impossible for you to conceive a world in which your company survives without you. However, you will soon learn that the process of selling a business is not about you at all. Remember, we live in a free society, and indentured servitude is no longer a vibrant business model. In reality, if you and the business are so intertwined that the business truly cannot survive without you, it will be hard to convince somebody to buy your company. Also, you need to understand that, during the sales process, the business (a/k/a your baby, your alternative self) will be questioned, criticized and belittled. Don’t let this get to you – it’s not personal and its not about you!
2) The Future Can Only Hurt You.
Most sellers want to talk endlessly about how well the business will do next year – “the future is so bright, you ought to be wearing shades!” Regrettably, buyers only want to talk about what happened last year and will tell you that the future is irrelevant. Secretly, the buyer may agree with your projections to some degree, but no wise buyer will admit it. The only time a buyer will show any interest in the future is when they believe that next year’s prospects look dim. If that happens, the buyer will want to talk about little else. Recognize the buyer’s perspective and how it impacts pricing, and be prepared to make the case for a high sales price using historical data. In the end, this all becomes an argument over price and is often solved by the use of an earn-out (part of the purchase price is tied to the future performance of the company).
3) Earn-out Ebb.
When buyers and sellers disagree over the value of a business, usually as a result of a differing view of the future, the concept of an earn-out appears. This can be a brilliant comprise between the optimism of the seller and the pessimism of the buyer which allows both sides to proceed in a state of bliss, each remaining convinced that their view will prevail and the price will be adjusted accordingly. The danger for you is that you adopt an overconfident view of the earn-out. An over-confident seller can unhappily discover that the earn-out should have never been considered “money in the bank.” It is critical to understand that an earn-out only provides you with partial control (at best) over the destiny of your earn-out. A paradox takes hold: You have to sell your company and give up control, yet maintain sufficient control over the business going forward to make sure you get your earn-out. Earn outs are often paid, but a conservative seller assumes that it will not be paid.
4) Due Diligence Drudgery.
How is it possible for the buyer to want to know this much about your business? Are they idiots? Can’t they figure out anything on their own? Every scrap of paper seems to become critically important. Even more worrisome, your buyer won’t commit to anything at all (pricing, terms, etc.) before your business has been studied under their microscope. You will be caught between trying to find that “last %^&$ amendment to that stupid contract” and worrying that the buyer is about to walk away with enough information to destroy you. Due diligence is a necessary evil (at least sellers view it as evil) in the process of selling a business, but it really needs to be viewed as a positive. Properly conducted and completed, due diligence means that there will be no surprises at the closing or after the closing and that things will work out as anticipated. As for somehow losing your business – it could happen, but that’s why you made the buyer sign a strong confidentiality agreement. (You
5) Somebody Actually Cares About The Meeting Minutes.
Remember those silly meeting minutes of those significant company actions that you were supposed to keep? No? Don’t worry, the lawyers for the buyer will remind you. For probably the first time in your life, you will actually be worried about whether you’ve kept up with all the legal formalities of operating a business. Quite obviously, if you have, there is nothing to worry about. But, if you haven’t – don’t panic, you are not the first entrepreneur in the history of the planet to have this problem. The good news is that a lot of these types of problems can be “fixed” in a way that provides comfort to the buyer. However, it is always much better to keep up with these responsibilities and make sure everything is in order before you start trying to sell.
6) What Do You Mean, Taxes?
Are you selling assets or are you selling stock? Is the business a subchapter S corporation, a subchapter C corporation or an LLC? Are you taking some of the purchase price as a consulting agreement or in stock of the buyer? Does any of this matter so long the buyer gives you that pile of money that you wanted for your business? You bet it does! The consideration of the tax implications of the structure of the business sale is often considered by first time sellers very late in the process. The reality is that seemingly small decisions can have large tax consequences. The after-tax dollars can differ dramatically due to deal structure. Don’t miss your opportunity to engage in tax planning (including estate planning).
7) The Phoenix Phenomenon.
It is inevitable. Your deal will be stone-cold dead at some point. Some insurmountable issue will smack you between the eyes and you will sink into the depths of despair. In a sick way, the good news is that this seems to happen somewhere along the line in just about every transaction, including those that eventually close! Generally speaking, the sale of your business will emerge from the ruins of the calamity like a phoenix rising from the flames. Sometimes it will resurrect itself more than once. Sure, deals die, but many close after going through a near death experience (or several). Don’t lose faith.
8) Its Not Over When Its Over.
When you close the sale of your business, you’ll never have to worry about it again, right? Wrong. Even if you don’t have to face the possibility of an “earn-out ebb,” your worries are not over when it closes. Your agreement will include representations and warranties which you will have to honor for some period of time following the closing. Some of the purchase price may even be escrowed for a period of time. In other words, the buyer will normally have at least some ability to reach through the closing - you will be at risk for giving back some of the money. Like paying taxes, an occasional sleepless night over a “tail liability” of some sort is nearly guaranteed. However, instead of being shocked and fighting the concept, you need to try to control the issue. Simply stated, you do your best to minimize your exposure by disclosing everything imaginable about your business during due diligence and trying to place as many limits as you can on your “tail liability.”
9) The Lawyers All Envy You.
Maybe you didn’t sell the business for as much money as you had hoped. Perhaps your ears are still ringing from the criticism of your baby. But, shock of all shocks, all of the lawyers at the closing table are jealous. Good business lawyers are like penguins – they know what it is to be a bird, but are denied the ability to fly. Experienced and valuable legal advisers know what makes a business successful and what makes it fail. They are trained to sniff out risk where the most conservative business person could never find it and are then able to guide you through the minefield of which risks are acceptable and which are not. However, ask any good corporate lawyer to actually take a chance, assume a risk and act like a successful entrepreneur and you will discover that they are genetically unable to take that step. So every single lawyer at the closing table fully understands what you do, but will never be able to "fly" with you. They are all envious and jealous.
What to Expect when Selling a Business for the First Time - To learn more about this author, visit Thomas McLain's Website.
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1) Nothing Personal, It’s Not About You.
You and your business may nearly be alter egos and it may be nearly impossible for you to conceive a world in which your company survives without you. However, you will soon learn that the process of selling a business is not about you at all. Remember, we live in a free society, and indentured servitude is no longer a vibrant business model. In reality, if you and the business are so intertwined that the business truly cannot survive without you, it will be hard to convince somebody to buy your company. Also, you need to understand that, during the sales process, the business (a/k/a your baby, your alternative self) will be questioned, criticized and belittled. Don’t let this get to you – it’s not personal and its not about you!
2) The Future Can Only Hurt You.
Most sellers want to talk endlessly about how well the business will do next year – “the future is so bright, you ought to be wearing shades!” Regrettably, buyers only want to talk about what happened last year and will tell you that the future is irrelevant. Secretly, the buyer may agree with your projections to some degree, but no wise buyer will admit it. The only time a buyer will show any interest in the future is when they believe that next year’s prospects look dim. If that happens, the buyer will want to talk about little else. Recognize the buyer’s perspective and how it impacts pricing, and be prepared to make the case for a high sales price using historical data. In the end, this all becomes an argument over price and is often solved by the use of an earn-out (part of the purchase price is tied to the future performance of the company).
3) Earn-out Ebb.
When buyers and sellers disagree over the value of a business, usually as a result of a differing view of the future, the concept of an earn-out appears. This can be a brilliant comprise between the optimism of the seller and the pessimism of the buyer which allows both sides to proceed in a state of bliss, each remaining convinced that their view will prevail and the price will be adjusted accordingly. The danger for you is that you adopt an overconfident view of the earn-out. An over-confident seller can unhappily discover that the earn-out should have never been considered “money in the bank.” It is critical to understand that an earn-out only provides you with partial control (at best) over the destiny of your earn-out. A paradox takes hold: You have to sell your company and give up control, yet maintain sufficient control over the business going forward to make sure you get your earn-out. Earn outs are often paid, but a conservative seller assumes that it will not be paid.
4) Due Diligence Drudgery.
How is it possible for the buyer to want to know this much about your business? Are they idiots? Can’t they figure out anything on their own? Every scrap of paper seems to become critically important. Even more worrisome, your buyer won’t commit to anything at all (pricing, terms, etc.) before your business has been studied under their microscope. You will be caught between trying to find that “last %^&$ amendment to that stupid contract” and worrying that the buyer is about to walk away with enough information to destroy you. Due diligence is a necessary evil (at least sellers view it as evil) in the process of selling a business, but it really needs to be viewed as a positive. Properly conducted and completed, due diligence means that there will be no surprises at the closing or after the closing and that things will work out as anticipated. As for somehow losing your business – it could happen, but that’s why you made the buyer sign a strong confidentiality agreement. (You
5) Somebody Actually Cares About The Meeting Minutes.
Remember those silly meeting minutes of those significant company actions that you were supposed to keep? No? Don’t worry, the lawyers for the buyer will remind you. For probably the first time in your life, you will actually be worried about whether you’ve kept up with all the legal formalities of operating a business. Quite obviously, if you have, there is nothing to worry about. But, if you haven’t – don’t panic, you are not the first entrepreneur in the history of the planet to have this problem. The good news is that a lot of these types of problems can be “fixed” in a way that provides comfort to the buyer. However, it is always much better to keep up with these responsibilities and make sure everything is in order before you start trying to sell.
6) What Do You Mean, Taxes?
Are you selling assets or are you selling stock? Is the business a subchapter S corporation, a subchapter C corporation or an LLC? Are you taking some of the purchase price as a consulting agreement or in stock of the buyer? Does any of this matter so long the buyer gives you that pile of money that you wanted for your business? You bet it does! The consideration of the tax implications of the structure of the business sale is often considered by first time sellers very late in the process. The reality is that seemingly small decisions can have large tax consequences. The after-tax dollars can differ dramatically due to deal structure. Don’t miss your opportunity to engage in tax planning (including estate planning).
7) The Phoenix Phenomenon.
It is inevitable. Your deal will be stone-cold dead at some point. Some insurmountable issue will smack you between the eyes and you will sink into the depths of despair. In a sick way, the good news is that this seems to happen somewhere along the line in just about every transaction, including those that eventually close! Generally speaking, the sale of your business will emerge from the ruins of the calamity like a phoenix rising from the flames. Sometimes it will resurrect itself more than once. Sure, deals die, but many close after going through a near death experience (or several). Don’t lose faith.
8) Its Not Over When Its Over.
When you close the sale of your business, you’ll never have to worry about it again, right? Wrong. Even if you don’t have to face the possibility of an “earn-out ebb,” your worries are not over when it closes. Your agreement will include representations and warranties which you will have to honor for some period of time following the closing. Some of the purchase price may even be escrowed for a period of time. In other words, the buyer will normally have at least some ability to reach through the closing - you will be at risk for giving back some of the money. Like paying taxes, an occasional sleepless night over a “tail liability” of some sort is nearly guaranteed. However, instead of being shocked and fighting the concept, you need to try to control the issue. Simply stated, you do your best to minimize your exposure by disclosing everything imaginable about your business during due diligence and trying to place as many limits as you can on your “tail liability.”
9) The Lawyers All Envy You.
Maybe you didn’t sell the business for as much money as you had hoped. Perhaps your ears are still ringing from the criticism of your baby. But, shock of all shocks, all of the lawyers at the closing table are jealous. Good business lawyers are like penguins – they know what it is to be a bird, but are denied the ability to fly. Experienced and valuable legal advisers know what makes a business successful and what makes it fail. They are trained to sniff out risk where the most conservative business person could never find it and are then able to guide you through the minefield of which risks are acceptable and which are not. However, ask any good corporate lawyer to actually take a chance, assume a risk and act like a successful entrepreneur and you will discover that they are genetically unable to take that step. So every single lawyer at the closing table fully understands what you do, but will never be able to "fly" with you. They are all envious and jealous.
What to Expect when Selling a Business for the First Time - To learn more about this author, visit Thomas McLain's Website.
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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George LudwigGeorge Ludwig is a recognized authority on sales strategy and peak performance psychology. An international speaker, trainer, and corporate consultant, he helps clients like Johnson & Johnson, Abbott Laboratories, Northwestern Mutual, CIGNA, and numerous others improve sales force effectiveness and performance. Though it's George's strategies and processes that help corporations increase productivity and performance, it's his tremendous energy and dynamism that spark the transformation. Again and again, clients remark on his amazing ability to unleash human capacity and inspire men and women to break out of their comfort zones. The result is a whole new type of salesperson. His customized presentations teach achievers to make stunning advances in their lives. From helping salespeople realize cherished dreams to helping corporations exponentially accelerate revenue streams, George Ludwig leaves audiences and individuals empowered, emboldened, and clamoring for more. George is the best-selling author of Power Selling: Seven Strategies for Cracking the Sales Code and Wise Moves: 60 Quick Tips to Improve Your Position in Life & Business. - Visit George Ludwig's Website |
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Staging DivaDebra Gould, aka The Staging Diva®, is President of Six Elements Inc., an internationally recognized home staging company. Inspired by many requests from aspiring home stagers wanting to start similar businesses, Gould created the Staging Diva Home Staging Business Training Program. Gould has trained over 1000 Staging Diva Graduates worldwide to start staging businesses. Buying decorating and selling six of her own homes in four years lead to an interest in real estate staging which she turned into a career with the launch of sixelements.com in 2002. Since then she has staged hundreds of homes in addition to teaching home staging training. Gould is the author of several home staging resources including a series of popular ebooks made up of a Design Guide, Color Guide and Portfolio Guide. For more information about Debra Gould visit stagingdiva.com. - Visit Staging Diva's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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David BarrDavid Barr is the President of Venture Opportunities, Inc. David has been a professional business broker/intermediary since 1980 focusing on General Business Brokerage and Mergers and Acquisitions representing client transaction value from $400,000 to $20,000,000. Mr. Barr has handled the sale of over four hundred and fifty companies. David earned a university degree from the State University of New York majoring in economics and business. David holds the Mergers and Acquisition Master Intermediary and the Certified Business Intermediary designations from the International Business Brokers Association. He is also a Senior Business Analyst and a Texas licensed Real Estate Agent. For more information about David and Venture Opportunities, visit www.bizdealmaker.com. - Visit David Barr's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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