Preparing your business for a successful future often goes hand in hand with organising your business for a successful sale. So you should focus on catching Deal Killers no matter whom you sell to — even if you believe you’ll never sell your business.
Deal Killers are things that can lower business value and jeopardise your future. So let’s see an example of the difference between addressing Deal Killers early and ignoring them until it’s too late.
Ben vs Carole
Ben and Carole Bush always had a sibling rivalry.
Ben’s manufacturing business had grown and provided for his family for 35 years.
Carole’s data analytics firm had done similarly well over the last 28 years.
Though they never worked together, Ben and Carole knew they wanted to sell their businesses, use the money they received to retire in style and continue providing for their families. But they each used different strategies with vastly different results.
Ben's Approach
When Ben decided he was ready to retire, he remembered that an advisor had once told him that selling to a third party might provide more cash to an owner than other exit paths.
So, ever the do-it-yourself man, he began approaching potential buyers who had contacted him to see whether they were still interested. Three buyers were, so Ben started to set up meetings with them to discuss sale terms.
He assumed he could bring his advisors in to provide guidance once the meetings were set.
Carole's Strategy
Carole was a more collaborative owner.
When she began getting ready to retire, she contacted her most trusted advisor to discuss her possibilities.
Her advisor asked her many questions about what she wanted in retirement. Next, they worked together to estimate how much after-tax sale proceeds Carole would need to achieve her goals. Finally, the advisor recommended that Carole hire a business consultant to identify any operational or human resources issues that might prevent her from successfully completing a sale transaction.
The business consultant was impressed by Carole’s business. But he noticed that Carole didn’t provide any incentives to keep her management team engaged and on board during the sale process. So he explained to Carole why it was so crucial to “handcuff” key employees. He then offered to help Carole design a comprehensive package to incentivise her management team to stay and support the company during and after a sale.
Deal Killers
Over the next two years, Ben and Carole found themselves in very different situations.
The buyers Ben had wrangled found several worrying flaws in his business.
He didn’t have a strong sales team outside of himself. So when asked whether his key operations employees would stay on after he left, Ben asked, “Who cares? Don’t you use your own people?”
After receiving offers he found insulting, Ben took his business off the market.
Seven years later, Ben accepted the only offer he could find, which was a fraction of what he had wanted.
Unfortunately, Ben didn’t achieve his goals, primarily because he decided to do everything himself and ignored critical drivers of business value. He created deal-killers.
On the other hand, Carole had an incentive plan for her key employees, a strategy to take her business
through a controlled auction and a team of seasoned dealmakers to guide her.
As multiple buyers performed due diligence, they found her company was practically turn-key, thanks to her strong management team.
Finally, through the controlled auction, Carole found a buyer that would offer her enough money to achieve her goals without radically changing the makeup of her company. As a result, she sold her company, gained financial independence, and had enough to provide for her family, including her brother Ben.
Carole took steps to address potential deal-killers, and although she had to put in extra work, it paid off by helping her exit on her terms rather than the buyers.
The Right Strategy
Strategising to avoid deal-killers may not guarantee a quicker or more lucrative sale, but it can increase the likelihood of fewer headaches during the sale process.
Just like you wear a seatbelt when you drive, despite not getting into a crash every time, taking precautions against things that can go wrong typically makes the journey safer, more predictable, and more fulfilling.
Unfortunately, Ben didn’t bother with the seat belt, and the crash was tumultuous.
On the other hand, Carole didn’t crash and reached her destination with a big smile.
How are you driving now?
The information contained in this article is general in nature and is not legal, tax or financial advice. Contact a lawyer or a tax or financial professional for information regarding your particular situation. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. Clients should consult their legal, accounting, tax or financial professional in specific cases. This article is not intended to give advice or represent our firm as qualified to advise on all areas of professional services. Master Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice you need.
Any examples provided are for illustrative purposes only. Examples may include fictitious names and may not represent any particular person or entity. This article has been sourced from a licence agreement with Business Enterprise Institute, Inc.
