There are Many Ways to “Sell” a Business – Boomer Succession’s Many Possibilities
July 3, 2008
Not too long ago, a prospective succession client came to me about selling his business. “I met with so-and-so who has advised me for years. We talked about what the business is doing and the plans I have for its growth and future prosperity. When you factor these things together, we feel it should sell for between $5 and $7 million,” he said proudly. I smiled, took his financial records and marketing materials and went off to calculate the business’s worth using generally accepted valuation approaches.
I couldn’t get my “numbers” to come anywhere near his. Fearing I had missed something, I asked what calculations he and the consultant had used. It turns out they hadn’t. The numbers they quoted had come out of the discussion and their notion on what such a business should be worth once all the possibilities played out.
This is not an unusual conversation in the world of succession planning. And it’s unfortunate for the business owner when he, or she, believes that a buyer will play into this logic. They don’t. Buyers buy for their own reasons. They are willing to pay a fair price, or get a bargain. None I’ve ever met want to overpay from both an ego and financial perspective. Those few who are willing to pay a premium have a significant strategic reason, haven’t done their homework, or are fools (and I haven’t met too many of them among the savvy buyers I generally run across). It’s also unfortunate that his consultant would participate in the illogic that sets unrealistic and/or inflated expectations.
For many boomers, the sale of a business is key to a comfortable retirement. Often a lifetime of very hard work has been put into its founding, survival and sustenance. That the marketplace might not value it for all it has been and all it has survived may be tragic but it’s real. Even businesses that have a lot going for them don’t always sell for the price the owner might want or think reflects the true value of his/her contribution.
Ultimately, the business is worth only what a buyer is willing to pay for it. In some instances, like professional practices, buyers usually won’t pay for “goodwill,” and will often stop making installment payments when THEY feel they have paid enough, despite what an agreement of sale may say. In others, buyers will pay or “goodwill” but will not pay a premium based on an emerging upward trend.
The good news is that there are many ways to let go and get out. These include: sale to a strategic buyer, sale to an economic buyer, sale to a family buyer, sale to employees, annuitizing the business with or without a type of lease-purchase arrangement, liquidating the business, or some combination of them.
To get your best price (or terms) may take time, and the buyer you want and need may be a needle in a haystack, so give yourself time to make the sale of your business happen. Too many boomers have thought they had “sold” their businesses only to awaken one morning to find out it wasn’t what they had planned. If you give yourself time, think realistically, and be flexible with ways you will entertain as part of a comprehensive exit strategy, you can, indeed, get on with the rest of your life.
© 2008 By John Reddish. John Reddish works with entrepreneurs and other leaders who want to master growth, transition and succession to get results faster, less painfully and in ways that work for them. For information and/or additional similar content go to: www(dot) getresults(dot) com, or call 1.800.726.7985.
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