Moving On

Getting the Most from the Sale of Your Small Business

James F. Grebey

• Publisher: De Gruyter
• Year: 2018
• ISBN:
  9781547400263
• Edition: 1
• Topic: Business
• Subtopic: Small Business
• Index: Business

Selling a business is a critical event that may occur only once in a lifetime. This is an event when you can't afford to make a mistake. Small business owners need basic guidance from someone who doesn't have a stake in the sale of their business. Moving On: Getting the Most from the Sale of Your Small Business is a straightforward, highly pragmatic discussion that will guide you through the sales process and help you avoid some of the common pitfalls faced by business owners that lack experience with the process. This book will assist you in finding the right professional help when you are ready.

James F. Grebey, an operations management specialist who provides small business owners with insight into the sales process, helps you recognize pitfalls that could impact your sale negotiations. This book is replete with tips and tools that you will need to drive a successful sale of your business, such as writing the "book" used to market the business, and recommendations to create a working model with a dynamic (what if) spreadsheet to justify your sales projections. Readers will learn where to reach out for qualified professionals that can help with the sale process.

Click here ( https://goo.gl/GgLNM8 ) for the author's related article "The Benefits of Effective Due Diligence for Investors and Business Owners" featured as the cover article on Divestopedia.

Chapter 1
Let’s Have a Conversation

Early in my career I worked for several large corporations—huge monolithic businesses that employed tens of thousands of people who mostly worked on large projects. Even though my job was secure, I found myself constantly drawn toward small businesses. While we had the safety net of my corporate day job, my wife and I launched a couple of small businesses—one successful and one a painful failure. It wasn’t always fun, and the work was hard, but we loved “doing our own thing” and the feeling that we were creating something of our own. Our small businesses were something we could grow and do with as we wanted, but our businesses were more like hobbies than serious ventures. With a large family and bills to pay, it was hard to walk away from my corporate safety net.

Then the economy changed, and the big corporations changed along with it. It was like having a picnic in the middle of an elephant herd, only now the elephants were starting to move and the safety net I thought I had was beginning to disappear. Corporate buyouts, corporate moves, corporate closings. I felt I had no control over my life—I only had the ability to react. At one point I worked for a corporation that was bought out, and bought out again, and bought out yet again. I had the same job—even the same desk—but my employer, who I depended on, continued to change. It was a tremendously insecure feeling. People got laid off. I was lucky and was not laid off, but my livelihood and my family were dependent on factors over which I had little control. It was the luck of the draw.

I had an opportunity to go to work for a small business and I decided it was a good time to make a change and move out of the large corporate world. I loved my new job and the feeling that every employee was making a contribution. I felt I had gained some control over my life. I learned a lot and was working at a level I never would have attained in a large corporation. Unfortunately, the owners of that small business proved to have questionable ethics, and I simply could not tolerate that. I went to work for another small business whose owners were highly ethical and who went out of their way to take care of their employees. I loved working for them, and I continued to learn. In the meantime, my wife and I continued to operate one of the side businesses we had started. My wife, whose energy seems unbounded, had also returned to corporate life after taking time out of her career to stay home while our four sons were young. She became the director of a non-profit company providing workforce training for small manufacturers. She liked working with small businesses but didn’t like the government bureaucracy that came with her job.

Our side business, Diligent, Inc., started to grow. Diligent allowed us to do what we loved. My wife and I used our combined experience to work with small businesses to improve their operations. We also worked with investors who saw value in these small businesses. Some of these businesses were growing, some were struggling, and some were trying to position themselves to attract investors. Diligent put us in control of our own destiny. At one point we had the opportunity to work in Asia, helping Asian investors looking to invest in US businesses and helping US businesses look for offshore manufacturing partners. We decided to take the opportunity and moved to Asia. We also decided when we were ready to return home. It wasn’t always easy, but at least we were making our own choices. The ability to make your own choices is one advantage of owning a small business. We know that at some point we will also decide it’s time to move on from our business.

Over twenty plus years, we have had the opportunity to meet and work with many small business owners. The entrepreneurs who built these businesses generally felt like we did. They had taken their destiny into their own hands. They had created a business and nurtured it. Some had gotten wealthy, and some had put everything they had earned back into the business. Some were serial entrepreneurs—people who grew a business only to sell it and then invest the money they gained into their next adventure. Still others were staying in their business and had made it their life’s work, and couldn’t imagine doing anything else. All these people had one thing in common—at some point, their current business, their current adventure, would come to an end, and they would be ready to move on.

When you work for a corporation, you are a cog in the machine. When you move on, for whatever reason, the corporate machine is designed to keep running without you. You are a replaceable part. It’s not the same when owning your own business—small business owners are not a cog in someone else’s machine.

To cash in on the value the owner has built, a small business must be able to continue operating after the current owner leaves. Unlike larger corporations, though, the ability of a small business to sustain its operations after the owner decides to move on isn’t necessarily built in. There’s no guarantee the owner will get the true value from the sale of the business, unless it has been intentionally positioned for a change in ownership. When a small business owner decides to move on, the owner makes the commitment to prepare the business for sale. The owner must prepare the business, so it will continue to operate after the cog (themselves) is removed. What we have seen many times, while working with small business owners, is that the owners have focused only on growing their business and have never properly prepared their business to be sold. They know how to run their business, but not how to position the business to earn the maximum return when it is sold. As a result, they don’t get the full value of their business from the sale—value they are depending on once they move on.

These small business owners enter the sales process with little or no experience with selling a business at a time when they can’t afford to make a mistake. There are things the owners can do to improve their return, but they don’t start planning for this event soon enough. They allow others to lead them through the sales process, and they forget some of the lessons they learned early as an entrepreneur. Take control of your own destiny! If you want things to go your way, you need to drive them. And if you don’t put in the work, no one else is going to do it for you. In our business we remind other small business owners of those lessons. Now is not the time for owners to relax. There is still a lot work to do after a business owner decides to sell.

One of the first things most small business owners realize as they think about selling their business is that many people will want a piece of the pie. The government wants to collect taxes on the sale. Your employees, vendors, and the professionals you hire to help with the sale will all have their hands out. It quickly becomes clear—it’s not how much your business will sell for, but how much of that you will be able to retain that will determine your return from the sale.

What most small business owners can use the most is a trusted friend or advisor they can talk to who has no skin in the game and nothing to gain from the sale of their business.

At this point, what most small business owners can use the most is a trusted friend or advisor they can talk to who has no skin in the game and nothing to gain from the sale of their business. Someone who they can have a conversation and ask, “What is this going to take? Where do I go from here?”

That’s what this book attempts to do. This is not a textbook. It is a conversation with a professional who has worked in the trenches and is offering practical advice and a glimpse into the sales process to help you avoid common mistakes owners often make.

Shadow of the Missing Owner

Have you considered what your business will be like without you? What will happen to it when you leave? You will need to prepare your business and yourself for these changes. The obvious question you may be asking is, “Once I sell it, why will I care?” The answer is you shouldn’t—but that is not the reaction all former owners have.

When you started your business, you, no doubt, created a corporate culture and an operations infrastructure that worked the way you wanted them to work. You built your business operation around the way you were comfortable working. Creating a working environment you enjoy is a common reason for starting a business.

Your personality has had an impact and become part of your business’s culture. If you are formal, wear a jacket and tie to work, and tend to hold structured meetings, your business, more likely, has a formal work environment. If you prefer to wear jeans to work and your meetings tend to be held in the kitchen over a cup of coffee, your business probably is a casual place to work. If you treat your employees honestly and show respect to the people around you, your employees are probably honest and show respect for each other. If you express value for your customers, your employees probably treat your customers fairly. These are things you put in place. You have cast your shadow over the business through the example you set. Now you will need to consider what happens when it’s time for someone else’s shadow to be cast over the business.

“When he was here we would never have been able to do that, but the new guys expect it.”

If maintaining the “status quo” after you leave is important to you, then you may not be ready to go. Changes to the business are not necessarily a critique about you. Another person will likely want to do things their way and not yours. It’s not about right or wrong—it’s about preference. You will need to adjust to these changes. If you are seriously considering selling your business and maintaining your legacy is a big consideration, then finding a qualified buyer is going to be a difficult—if not impossible—task. No matter how hard you try to find someone similar to you, a new owner will cast their own shadow on the business. You may find that selling is not the right option for you at this time.

Staying In or Getting Out

In the next chapter we will discuss the common reasons people cite for selling their business. But before we do that, let’s talk about some reasons not to sell your business. As you consider whether to stay in or get out, take some time to consider your motives for selling. Let’s make sure that leaving is the right answer for you. Deciding to sell your business should never be an impulse decision. If your decision is made almost as a reaction—“OMG I’m going to need to sell my business”—stop whatever you’re doing and go to your favorite thinking place. The decision to sell your business should never be compelled or made on impulse in response to external life events.

Frequently the decision to sell a business has more to do with an owner’s personal compulsion than it does with any true desire to leave the business. Take the time to consider your actions. Are you really ready to completely break ties with your business, or is there something else compelling your actions?

“I created my business and the last thing I wanted to do was get out—until this happened, and I didn’t think I had any choice. I guess I didn’t think it through.”

Try looking for answers other than getting out. Maybe it doesn’t make sense for you to continue as the chief executive officer any longer, but is selling your business really your only choice?

Health issues are a common reason a small business owner may feel compelled to sell. If you are experiencing health issues, staying in may not be an option. Before deciding which path is best for you, be sure to have a conversation with your doctor. Depending on the nature of your illness and your ability to continue working, there may be other alternatives to selling your business.

Consider finding another way to do your job that requires less direct physical involvement and allows you to continue to participate in the business in some manner. You may be at the point where you are no longer able to load the truck, so maybe it’s time to hire someone younger to do the lifting while you take on the role of supervisor. Promote yourself to supervisor (and stay on the company health insurance plan). Maybe it’s possible to hire an assistant that can drive you to appointments or help you with your other physical needs. Leaving may be the easier decision but letting a health condition force you into a lifestyle change you’re not ready for might have a further negative impact on your health! Be creative finding a solution. Accommodation may be easier to live with than selling.

Leaving may be the easier decision but letting a health condition force you to into a lifestyle change you’re not ready for might have a further negative impact on your health!

Work-induced stress is another reason that compels owners to sell. Stress can cause both physical and mental issues, and stress symptoms have a habit of showing up in different ways for different people. The connection between high-stress jobs and health issues is also well documented. Leaving may help reduce your current stress, but it may also cause your stress to take on a different form. Consider hiring a chief operating officer (COO) to handle the day-to-day problems and find more free time to relax.

“I couldn’t take the stress of my job anymore, but after I sold my business and retired I found the stress of not being able to continue my former lifestyle was even more stressful.”

Some business owners are trapped by their own success. If your business has grown far beyond anything you ever imagined, you may find yourself suffering from boiling frog syndrome. The boiling frog fable says that, if you boil water and put a frog in it, the frog will jump out. But if you put the frog in the water while the water is still cold and slowly raise the heat, the frog will eventually be boiled.

If you’re at a point where your business has grown beyond your experience or ability, getting out while you are at this peak in your career may not be your best decision. You grew your business to this point. Now you recognize that you’re in over your head, and the future growth of your business is being constrained by your personal inability to keep up with its growth. You feel compelled to sell because you think the only solution is to get out. It can be tough to admit weakness, but many times, not admitting a weakness can cause a business to eventually fail . You’re looking around and suddenly realize the water is boiling! Jumping out may not be your only answer. Maybe you can find a way to turn down the heat.

Acknowledging your weakness is the first step. Why not try to preserve your income while you’re still at the top of your career? Certainly, you can hire a consultant to advise you or hire a person to operate the business for you—if you can get used to the idea of letting someone else direct your business. The best solution may be to hire people who can cover your weaknesses and advise you in those areas. You may not be ready to leave, and, as you will see later in the book, selling your business could put constraints on your future activities—constraints you may not be willing to accept. Consider alternatives such as promoting yourself to chairman of the board and hiring a CEO who has the experience you lack. Make your new CEO responsible for future growth strategies.

Selling your business could put constraints on your future activities that you may not be willing to accept.

There are also owners who, for no apparent reason, feel like getting out immediately because they are no longer happy doing what they are doing (for what I’ll simply describe as emotional reasons). Time changes people, and the things that challenged you at one point in your life may not seem as important later. Important decisions, made for emotional reasons, can easily end up in seller’s remorse. Selling a business, without preparing it or yourself for that event well in advance, can be a costly error both in the loss of value in the business and the owner’s loss of income. If you truly are unhappy and want to get out, take the time to develop an exit strategy and plan your next move carefully.

“I was 55 and in the middle of a full-blown case of midlife crisis when I decided I was tired of what I was doing and wanted to sell of my business.”

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