A Seller’s Mindset
Before you begin the exhilarating journey of selling your company, it is critical that you go into to the process with the correct mindset. The two most important questions you should address prior to selling your business are:
1. Why do I want to sell?
2. What will I do after I sell?
These questions seem simple, but they can be the most important determinants of whether you will sell your company or not. Answer these honestly, and make sure the answers really mean something to you.
Owners that have a very clear understanding of why they want to sell and what they plan to do after the sale are more prepared to handle the speed bumps that can come along with the sales process. Sometimes, having the end goal in sight can make all the difference on days when the sale process gets bumpy.
Why is knowing what you want to do post-sale so important to the sale itself?
The seller that has a clear purpose and direction post-sale has really made up their mind that this is the path they want to take. Although they are still a vital part of the business they built, they have also created a clear vision of the one or two things in life that are bigger than them. They are excited to move forward and pursue new challenges ahead – this can make all the difference in the world.
Here are other mindset issues that can decrease the likelihood of a sale:
The main reason most businesses fail to find a buyer is due to an unmotivated seller. A seller lacking the motivation to work toward closing the transaction will likely never experience the thrill that comes along with passing along something they’ve worked so hard on.
If the wealth and change of scenery that comes from selling your business does not prompt motivation, then chances are now is not the right time to sell. Buyers will sense this lack of motivation and lose interest in the business.
Some sellers will come with very unrealistic expectations on what their business is worth. Despite providing comparable market valuations, some business owners have a specific number in mind and nothing can convince them otherwise.
Truth is, you can use any valuation model, but the business is only really worth what the market is willing to pay for it today.
There are a lot of areas where a seller can become inflexible, causing the deal to fall through. We discussed the valuation issue above, but sometimes there are specific deal terms (which to a buyer may be considered normal) that a seller may view as a deal breaker.
These can include things like non-cash consideration (seller financing or an equity rollover), the seller transition plan (agreement for a seller to stay on with the business post-sale), a desire to include certain amounts of work-in-progress, accounts receivable or tangible assets in the business. Other deal terms may include: cash escrows, earn outs, contingent purchase holdbacks and representation and warranty indemnity caps and baskets.
Deal negotiations can be intense situations in which expectations, seller’s emotions and buyer’s ambitions may easily collide. You need to expect some turbulence and anticipate challenges. The best strategy is to know how much you would be willing to give up in negotiations before they even start. Sellers that are able to distinguish between normal course deal terms versus non-standard deal terms have a higher degree of success selling their business.
Your M&A advisors can be particularly helpful at this stage because they have extensive experience to negotiate deal terms, manage expectations and inject objectiveness, if necessary, through the process.
Studies show that nearly 50% of all acquisitions are unsuccessful. Having the right seller’s mindset is essential to a successful business transition. A good M&A advisor can help you achieve the right mindset to ensure success and happiness during and after the deal.
For more information on what you should do before selling your company, visit our website at www.vesticor.com.
For a FREE copy of our book, Don’t Sell Your Business Yet, you can go to www.dontsellyet.net and download your complimentary copy.