Mark Hahn Fields Five Questions About Selling a Business
WFI: What are the primary reasons a business owner would seek to sell a business?
Hahn: “We find that a business owner sells when they have crossed an “emotional bridge” and no longer wants to be in the driver’s seat. While occasionally a business owner receives an unsolicited offer that is too good to be true and will enter into a transaction to sell their business, most of the time a life event triggers the sale process, and a seller seeks out buyers. The life events that lead to a sale process include aging out, a sudden or chronic illness, demands from a spouse to work less, other interests, financial challenges in the business, or conversely, financial success. Different goals among partners, especially related to age differences, is also a common reason that triggers a sale process.”
WFI: In many cases, selling one's business is an emotional roller coaster. How do you advise owners to prepare for that?
Hahn: “Number one is to be ready and have crossed that emotional bridge; know why you want to sell. The process can be an emotional roller coaster; simply knowing that there likely will be ups and downs in the process may be the most important part of the emotional preparation. The hardest time emotionally is often when the seller thinks that a certain buyer is perfect for them, and then that buyer passes on the opportunity.”
WFI: Can you give an example of a time you advised someone to not go through with it?
Hahn: “Sometimes, the best deal is the deal you did not do. We recently advised a client on the buy-side to not continue with a prospective seller. The seller did a significant portion of their business with the federal government; nothing wrong with that, but it was not in our client’s wheelhouse. In another case, also on the buy-side, the seller did not provide the information on a timely basis as he promised. Eventually, we advised our client to move on. On the sell-side, we recently received an offer that included an earn-out with cliff provisions in which the earn-out went to zero if a high threshold was not achieved post-closing. We advised against accepting that offer.”
WFI: What are some common mistakes you've seen business owners make prior to or during a sale?
Hahn: “A common issue is a seller’s unrealistic expectations of the value of the business; placing an emotional value on the legacy of the company and the years or decades spent building the company. While the legacy has meaning, buyers are paying for the future earnings and potential of the business. That is why the best time to sell a company is when it’s growing, and profits are increasing. Sellers often think emotionally about the business while buyers are drilling down into the numbers, so have your financial statements in good order.”
WFI: What should selling business owners expect life to be like after the sale?
Hahn: “It goes back to the reason for selling. Financially challenged sellers may end up working somewhere else, or if the selling owner controls sales, as is often the case, the selling owner migrates to a sales role within the buyer’s organization. A seller who is financially secure may want to exit the business in short time, however we urge sellers to commit to assisting buyers to accomplish an orderly transition of the business, whatever that may mean in each individual situation.”