Picture of man in business suit standing at the fork of two roads looking toward a sunset in the distance. Title graphic for Selling Your Business

Psychological, Business, and Lifestyle Considerations of Selling Your Business

People often get advice on selling their business based on another person’s values. If the friend or advisor values financial gain, they address how much growth potential is in the business. If the friend or advisor values a stress-free lifestyle, they focus on the potential for lower stress. 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.

The only person(s) who can and should be answering this question are you, your spouse, and your business partners. That level of non-answer about whether you should sell can feel intimidating, so here are some questions to guide your thought process.

1. What are you hoping to achieve by selling your business?

2. How will selling the business impact your finances, time, and lifestyle?

3. Are you selling to move toward something you desire or to escape the business?

 

Evaluating the Business to Increase Options

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.

The psychology of money extends well beyond personal finance and into business at all levels. Regardless of one’s comfort level with finance, a solid understanding of the numbers provides power. It lends confidence in decision-making, provides reassurance if one is over-assessing risk, and gives the hug of ugly truth that helps guide one away from the abyss, even if the outcome is less than optimal.

Between competing demands and any personal financial hang-ups, it is normal for many smart owners to lose touch with their finances.

Further, many CFOs or financial directors have proved less competent than owners anticipated, leaving a gap between the assumed and actual reality of the financial health.

Thus, evaluating the financials for a potential sale can also inform owners of their position and options, even if they choose not to sell.

2. Assessing your assets.

A family lives fully and focuses on work, play, and acquiring possessions. In the course of that life, it is easy to lose focus on which possessions have actual value separate from emotional attachment. In the same way, 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). Similar to financial accounting, looking specifically at the assets can help owners get a fresh look at what exists and make decisions accordingly.

3. To what degree is the success of the business reliant on the presence of the founder?

Businesses that rely on the founder’s presence are usually viewed as less valuable because they are more vulnerable. Reliance on the founder means that something in the founder’s personality or skillset renders the system unscalable without his/her presence. For this reason, gradually detaching from daily operations is a key ingredient to selling a business.

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

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.

Expectations & Deal-Making: You are Selling the House

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.