Selling Your Business: The Sale & the Transition
Psychological, Business, and Lifestyle Considerations of Selling Your Business
Selling a business, especially if you founded it and nurtured it for years, is more than a financial transaction. It’s an identity transition, even if you start another one.
As an advisor to founders navigating transitions, I’ve found that most founders underestimate the psychological complexity of both the sale process and what comes after. It involves mentally stepping out and back in order to assess both the business and yourself as separate entities, then projecting multiple hypothetical pathways that will impact both.
Biased Advice about Selling Your Business
Most advice about selling a business is overly simplistic. It reflects someone else’s values, not yours. A friend might emphasize lifestyle. An advisor might address the growth potential.
Worst, if someone has sold their business, their advice will come from their values, outcomes, and experiences, which may or may not be the same as the business in question.
These questions can help you slice through the noise of others’ opinions to focus on what matters to you.
Evaluating the Business to Increase Options for Selling it
Getting and keeping the business ready to sell will generally create happier business owners, even if they decide to retain ownership.
1. Evaluating EBITDA and cash flow – Don’t let the overwhelm limit your options
Pattern–A lot of people who are fabulous with money can get emotionally stuck when it is involved with big decisions. If you can get familiar with your numbers WITHOUT an internal commitment to sale. While sometimes hard-won, the knowledge creates leverage in your decision-making. Additionally, the path involved in getting it often clarifies previously vague decision points.
Second, even if one likes their accountants and in-house financial directors, cross-checks provide peace of mind and help to identify risks early.
If you can do the heavily lifting even before you know if you want to sale, you set yourself up both financially and psychologically for optimal outcomes for the present, during future sales negotiations, and for life aftewards.
2. Assessing your assets.
Businesses can lose track of what they own. In the assessment process, some owners may find assets they are not maximizing or could sell, such as intellectual properties. Alternately, they may see an asset that no longer is an asset because it is outdated or unusable to prospective buyers (whether it’s a building or a copy machine). This assessment helps separate the real value of the business from the emotional value of it, much as when we decide which household positions hold value for us versus what someone else would pay to acquire them.
3. To what degree is the success of the business reliant on the presence of the founder?
It’s common knowledge that a business that relies on the presence of the founder is less valuable. However, the pathway to changing that often yield dividends beyond the actual valuation.
Detaching from daily operations also helps inform the owner if they want to sell. Those who find a competent manager or otherwise build a system to minimize reliance can see a pathway to retain the business without direct involvement. For owners who have always been highly involved in daily operations, it can be hard for them to envision a lifestyle where that is not the case. Preparing to sell may give them a glimpse into an alternative that can further inform their decisions. For some owners, they want to detach and move forward with other endeavors. Others like diversity and the option of minimizing their role while building or moving to new endeavors. There is no right or wrong answer, but shifting to less reliance on the owner will decrease the potential for a burnt-out and hasty business selling decision.
How Burnout Makes You Vulnerable When Selling Your Business
Burnt out business owners lose negotiating power when they wait too long to sell. There is not enough gas left in the tank to wait for the best deal, pass on the wrong deal, or fight for a win-win. Often, burnt-out business owners will acquiesce to the demands of the acquirer against their better judgment because they fear that the potential acquirer will leave if it’s too much hassle.
The consequences of a burnt-out business owner show themselves not only in the overall price but also in the terms and the more subtle aspects of the contracts. Attorneys protect with legally enforceable contracts; accountants assist with valuation; however, some of the foundational elements of the business, such as cultural concerns or intellectual property, can get overshadowed by the more tangible factors of negotiation. Without burnout, owners can think more clearly about what is essential to them and how to ensure that their interests in the letter of intent and later sale. Burnout makes it hard to remember these items through the haze of fatigue and frustration.
Finally, and especially difficult for business owners with high-achieving personalities, is the tendency to assume the best in others. While this is generally a good characteristic, it makes the burnout business owner extra vulnerable. Even in normal times, High Achiever business owners tend to give others extra chances and the benefit of the doubt. In times of burnout, it’s simply less energy to assume good intentions and hope that people will stay true to their word.
The Sales Process
Expectations & Deal-Making: You are Selling the House
For owners who built their business over decades, identity is fused with ownership. This fusion creates loss aversion that affects valuation acceptance and deal structure. Even burnt-out owners who ‘just want out’ find their emotions muddy the negotiation.
When people sell their house, they intuitively understand that they are losing control of what the new owners will do to it. They may have cultivated gorgeous rose bushes for years, and the new owners will dig them out and throw them away. Maybe that customized fireplace that was their pride and joy will be the first to be hit by the demolition crew.
For business owners, it’s easy to think they are renting the house instead of selling it. Someone else is taking it over, but the owner can still dictate the landscape or veto remodeling decisions. This continued control is not the case when selling a business. Even if all parties carefully spell out the terms of the contract, there is no guarantee the other party will follow them. Depending on the size of the acquirer, they may simply hedge their bets and risk a lawsuit if they bend compliance. The business owner, then, is left with the decision about whether they want to take up a fight when they are trying to move on with their lives.
After the Sale
“There’s not really anyone to talk about it with Tricia. No one wants to hear that you have millions in the bank and are slightly depressed. They’re just envious of the millions.”
“I always thought I wanted to retire and play golf. Now I can play golf all day. After a few weeks, it became boring. Why do I exist now?”
From Dr. Tricia:
I sat on the Zoom call, watching the guest speaker talk about selling her business. “Oh no, I thought. She’s depressed.” It’s not the type of depression that involves crying one’s eyes out or an inability to function; it’s the struggle for purpose I see behind someone’s eyes.
She had achieved what many only dream of—building a profitable business, selling it early, and having the choice to do whatever she wanted for the rest of her life.
What few people recognize, including owners themselves, is that in addition to responsibility and burden, owning a business often brings purpose, creativity, and challenge. Building a business requires a certain type of personality – an interest and willingness to engage risk and work, fear and pleasure, overwhelm and triumph…in a way that is much too unpredictable and uncertain for the average population. And this same personality tends not to do well with unfocused energy. What feels like relaxation to many people will feel boring to entrepreneurs.
Common Business Transitioning Mistakes
1. Underestimating the transition. Most owners focused on selling the business without assessing the changes after the sale.
2. Assuming that they will feel a certain way after selling a business and making plans based on those assumptions.
3. Starting another business to ease the discomfort without taking adequate time to assess the lifestyle they’d like.
4. Volunteering or engaging in many new opportunities because of unstructured open time.
Business Transitioning Recommendations
1. Assume you will have unexpected emotions and frustrations after selling. By doing so, you set yourself up for a successful transition. Maybe your emotions will be easy; that’s okay. It’s just better to plan for a jumble of them.
2. Refrain from making promises about what you will or will not do after you sell the business. Frankly, you will not know exactly what you’ll need regarding time and energy buffers until after the company sells. Try not to make promises out of your assumptions.
3. Wait six months before deciding what comes next, unless you decided on a path BEFORE selling the business. When faced with discomfort, people often go back to what they know. Make plans to deal with the discomfort, so your next move is a strategic rather than reactive.
AND, It's Not Wrong If You Decide to Start Another Business
Business offers many entrepreneurs a creative outlet and a sense of meaningful challenge. The process of building a business energizes some people. People aren’t workaholics if they decide that they love building businesses. The problem occurs when working on business becomes an unexamined default such that they build businesses to fill a void rather than because they enjoy it.
Jimmy's Multi-Faceted Identity
Jimmy has a succession plan; he plans to sell in a few years. In addition to managing the business at a high level, he goes on trips, levels up his golf game, enjoys his family and has an insatiable curiosity that allows him to fully engage in whatever new type of learning comes his way.
From Dr. Tricia: “I called Jimmy to ask if he’d always had outside interests or if there had been a period of his life when he was business-only. He responded, “I’m on the 18th hole. I’ll call you back.”
Whether Jimmy starts another business after he sells this one, he will be fine. His sense of personal identity and daily activities are varied. Business is part of his life but not the entirety of it.
Creating a multifaceted identity does not mean one needs to have a lot of hobbies. In fact, most business owners don’t have traditional hobbies. Their “hobby” might be reading, learning, or being in a new situation. However, a multifaceted identity means one can extract joy from multiple sources. It may be a sport, a church, a social group, a volunteer opportunity, sitting by yourself with a cup of coffee and a book – it’s the ability to feel whole and complete outside your role as a business owner.
A multifaceted identity also buffers against stress and depression. Creating one as early as possible affords individuals more options about how to create meaning and helps them navigate some of the stressors and uncertainties that come with transition.
Feeling Lost Doesn't Mean that You are a Failure
Most business owners are successful because they have ambition, a plan, and the ability to execute it.
From both an emotional and a lifestyle perspective, the time after selling a business can feel like no man’s land. Emotions vacillate and the plan changes. Some people are exhausted. They expect to feel exhilarated but instead, worry that they won’t get off of the couch again.
One of the most constant and annoying facts of psychology is that healing and transitioning require time and space. It can’t be managed cleanly. Emotions and plans might shift constantly at first. So give yourself flexibility and plan for the plan to change.
A strategy that helps many people is to put some structure into their day. Implementing the concept of a multi-faceted identity, someone may decide to go to the gym or take a walk for 1 hour each morning. Someone else decides to read two chapters from a book each evening. The commitments do not need to be time-consuming; rather, small routines can create a sense of predictability and comfort. Most people feel crazy for missing their overloaded schedule, but this is a normal reaction. The key is to have a little schedule without overloading it and reverting to the default.