Sellers' Remorse

As an advisor to private business owners, I often come across situations where an entrepreneur is conditioned to believing that the end-game is an outright sale of the business where they get a whopping pay day and nevermore have a care or worry in the world. This certainly can happen, but during the post-partum doldrums following a deal, we often hear business owners grimace that the financial transaction was not as satisfying as they thought it might be. They had a decent payout, but there's something missing. It could be boredom or separation anxiety that could have been averted with a more gradual exit. Sometimes we hear that they are concerned about the employees and the legacy they built. Cash is "King", but there are often intangible concerns and issues that can easily fall by the wayside because of an intense focus of squeezing every nickel out of the deal.

I cannot and will not blame business owners for focusing predominantly on maximizing value and cash if that is truly their only objective. First, it's their prerogative. Second, it is an easy objective to set, measure and execute. It's clear that money can solve a lot of problems, but to regurgitate an abused and overused term, "money cannot buy happiness". The question that business owners and their advisors really need to think long and hard about is, "What will make you happy?" As bizarre and counterintuitive as this may seem to folks in the finance world, there may be many "softer" objectives beyond maximizing value and cash. The business owner needs and his or her advisors need to understand what the objectives are, gauge the relative importance of each objective and understand that some objectives may be incongruous.

Once again, I am not suggesting that an owner throttle back on the value objective or that the value and softer objectives are even mutually exclusive, but I do feel it is important for them to imagine the post-transaction world and ensure that they like what they see. This may all seem very self-serving since the majority of our clients are ones that understand are adverse to a third party sale. Many of these clients are concerned about the legacy of the business, maintaining their control and ensuring the employees will be protected. There are tradeoffs to be sure, but we are generally able to provide them a means to get value that is at or near the market for their company while simultaneously providing them the ability to achieve other objectives that would be difficult or impossible to achieve with a third party sale. The landscape is littered with business owners who became "set for life" from a financial standpoint, yet many are generally unhappy with many of the non-financial side effects of the transaction.

A business owner who is in the process of evaluating how to exit a business really needs to evaluate what the objectives are. Knowing what you want will not guarantee that all the objectives can be achieved, but it will provide a framework for evaluating the best course of action.

AUTHOR:   James F. Higgins Jr.