Accomplishing the goal of selling your business
Some entrepreneurs launch a business to bring their talents to bare, to achieve their dream of serving a specific type of client in a specific way, never considering selling their business, but many are acutely aware that their business may someday be worth selling. When your business is humming, your management team is strong, and your metrics can describe the value in your business, it may be time to sell. But that doesn’t mean you have to leave your company.
Charlie Brock is chairman of the board at FourBridges Capital, a Tennessee-based investment-banking firm that focuses on advising Southeastern middle market businesses. Charlie is also CEO of Launch Tennessee, a public-private partnership focused on supporting the development of high-growth companies in the state of Tennessee with the ultimate goal of fostering job creation and economic growth.
He notes that it is true that when you sell your business, you aren’t necessarily destined to get the boot or sail off into the sunset – there are ways to actually stay put after you sell.
Brock says, “Define your motives. For many business owners, selling a company is a once-in-a-lifetime event. You’ll make the best decisions for you and your team if you understand exactly what’s driving you to sell. Work backwards: ask yourself what you hope to have and where you want to be after hands shake and the deal closes.”
If you envision your role continuing after you sell, Brock says you’re likely motivated by financial security, noting that “Maybe you enjoy operating and growing your company, but you feel the need to de-risk your financial portfolio and remove your name from the company’s debt.” The second reason many want to stick around is that it is your career calling. “If you built a company around something you’re passionate about, you might find that you prefer working in the business rather than on it,” Brock adds.
Paving the way to sticking around
In his own words, Brock offers the following tips to staying in your business after you sell:
Motives can help determine the best transaction strategy and course of action. Be honest with yourself – and your advisors – about your reasons for selling, so that you can achieve the outcome you’re seeking.
Know your type and market appropriately. Once you know why you’re pursuing a transaction, it’s important to attract the right kind of buyer.
For owners looking to de-risk their portfolios, a financial buyer (i.e., private equity group) may be the best option. If you go this route, you’ll sell a percentage of your interest and give up some amount of control. Typically, a deal will be structured so that you’ll still have skin in the game, and you’ll probably be expected to continue operating the business for a period of time.
On the other hand, if you want to stop running the business and start working within it, market to a strategic partner who has some experience in your industry and/or a desire to expand into it. Most likely, your ideal buyer will want to keep you on board because of your market connections, your closeness to the company, and your industry competence.
Label yourself. If you’ve identified a potential buyer, define your post-transaction role early in the process. Know the exact nature of your future responsibilities and reporting relationships.
It’s not unusual to shy away from this part of the conversation: it can be hard to advocate for yourself, and many owners worry that they’ll scare away their buyers. While keeping quiet could make for smooth sailing in the short term, you’re simply delaying the inevitable – and setting the stage for bigger battles down the line.
It’s best to make your non-negotiables and deal-breakers clear from the start. Here again, having an advisor is invaluable: it allows for some “good cop/bad cop” role playing, and it adds a much-needed third-party perspective during negotiations, which can be difficult and emotionally charged.
Don’t get halfway down the aisle before you realize a marriage isn’t in the cards. Be open about your ideal role, and find out whether it aligns with your potential buyer’s expectations. And if it doesn’t? There are other fish in the sea.
Recruit the experts. It’s important to lean on experts throughout every step of the deal process. But when you start finalizing terms, experts become a necessity.
Is your understanding of your future role actually reflected somewhere in the lengthy, complex and legally binding documents that you’re about to sign? An investment banker and an experienced M&A attorney can ensure that the terms you think you’re agreeing to are, in fact, buried in the legalese. Your advisors know what to look for, and more importantly, how to spot red flags. And assuming you’ve shared your motives with them (see #1), they can alert you when they come across something that doesn’t suit your fancy.
Check your ego at the door. If you’ve been the top dog at your business since its inception, prepare for a change: it’s a completely different ballgame after the money changes hands. Even if you’re positioned as CEO post-sale, someone else’s finances and decisions will be in play.
The transition can be challenging and emotional. Should you choose to sell and stay, remember why you’re doing it – and what you’re getting out of the deal. Chances are, if you pursue a transaction based on sound reasoning and expert advice, the benefits will outweigh the trade-offs.
Brock advises that whether motivated financially or by your passions, you have the power to prepare a scenario where you remain involved long after your company sells.