Having handled the sale of privately held companies for nearly 30 years, I have witnessed the full gamut of emotions experienced by clients during the business sale process. The majority of business owners are “Type A” personalities, and when undergoing the sale of what is typically considered their most prized asset, emotions can run rampant. Overreactions to various situations in the process are not uncommon. This domino effect can ultimately prevent a seller from accurately assessing the core issues at hand and taking an optimistic approach towards negotiations and resolutions.
Most business owners have never experienced the sale of their own company. The process will likely be one of the most challenging professional experiences. In the same manner that business owners prepare for cyclical business or foreseeable road blocks, it is wise to prepare for and understand the emotions that will likely be present during this intricate process. Mental preparation will better position a business owner to properly manage these emotions, enabling clarity and thereby preventing any interference with achieving exit strategy goals.
Common Emotional Deal Killers
A seller can be their own worst enemy during the business sale process. They often create significant transaction obstacles caused by inner feeling “seller’s remorse”. With so much at stake, it is understandable that business owners can be overwhelmed by emotions and the scope of the process, leading to irrational decisions that can kill very favorable transactions.
It is easy to underestimate the emotional connection that owners have with their businesses. Creating and properly managing a company is an all-consuming responsibility that impacts all aspects of an owner’s life. Emotionally preparing to separate from their “baby” can prove to be more challenging than determining what makes the most financial sense. We have witnessed scenarios where an interested party was prepared to pay a multiple that far exceeded the seller’s expectations, and yet the seller was ultimately not able to “pull the trigger” on a transaction. Future plans and options had not been fully analyzed and an amount that once looked so good on paper was not enough to entice the owner to transition to a new stage in life. Seller’s remorse in situations like this ultimately leads to the transaction falling through. After several months, the pressure subsides and more often than not the seller will decide to go forward with the sale of their company. While they are now more confident in their decision to sell, the interested party has typically moved on or is no longer interested in pursuing the business and the process needs to start from scratch.
Business owners generally develop a mindset of accumulating wealth and saving for potential tough times or cyclical business periods. The sale of a business will typically result in a liquidity event that will leave the owner with more wealth and financial freedom than they have ever had. It is also surprisingly challenging for many business owners to accept that their decades of risk taking, relationship building, and company owner status will end the day a check is cut and control is relinquished.
There are alternative exit strategies that allow the seller to retain a percentage of ongoing ownership for a period of time, or remain active in the business working for the acquirer. It is important to review your options and have a clear view of lifestyle goals and activities post-closing of a transaction. This is something that cannot wait until the day of closing.
Family members’ emotions are another significant factor when selling a business. Controlling their emotions throughout the process is an important component for a seller to accomplish exit strategy goals. Sellers typically should include family members early in the process and provide clear expectations about how the sale will impact them. Continued communication throughout the process is also key.
Mitigating Seller’s Remorse
Seller’s remorse will always be a factor during the business sale process. There are many steps a business owner can take in preparation for selling their business to mitigate any feelings of regret, self-doubt, and remorse. Factors that will influence achieving a successful sale include:
Obtaining a valuation of the business to gain a realistic expectation of what the business is worth and understanding the likely after-tax yield that will be generated by a sale.
Working with the right network of professionals to manage the sale of the business. During this process it is critical to utilize the guidance of a professional team that includes an experienced M&A advisor, attorney and accountant to orchestrate a sale. In addition to the obvious advantages, this approach takes the edge off the self inflicted stress that will be present in preparing for a life changing decision/event.
Thinking through what comes next, whether it is continuing with the business post-transaction or pursuing other ambitions following a requisite transition period.
Gaining Emotional Intelligence
Emotional intelligence is the ability to identify, assess, and control ones emotions or the emotions of others. One of the roles of an M&A advisor is to provide guidance, manage expectations, and handle the selling process from a non-emotional perspective. This protects the client from the emotional rollercoaster that can hamper the process or from a break in focus from proper management of the business. A three-pronged professional team will handle the technical aspects of the process, allowing the business owner to consider what the business sale may allow them to accomplish in the future: a better lifestyle, more travel, more time with grandkids, less pressure, liquid financial security from equity that had been tied up in the business, or cash for a new business venture. Focus needs to be forward thinking despite a tendency to look to the past and the blood, sweat, and tears poured into building the business. The emotional intelligence provided by an M&A team prevents any knee-jerk reactions that can disrupt this very fragile process.
Being able to manage the emotions that will arise throughout the process of selling a business will avoid sabotaging all other preparations made for a successful exit. A business owner cannot predict how they will feel during and after the sale of their company, but they can and should utilize professionals who understand the sale process and are trained to best control the emotions of all parties involved.