Selling a business is a reality many will face, and if planned properly it can be a positive experience.
It is widely acknowledged that a significant portion of the private firms will be coming onto the market over the next ten years as the baby boomer generation nears retirement.
While some have family members to pass the business to and others will reach an arrangement with employees to buy out their interests, most will be seeking to sell their businesses.
With this background it is hard to understand why so many fail to confront the issue and fail to undertake business and personal planning to provide the best outcome from such an event.
Niall Cairns, Founder & Managing Director, of Nanyang Ventures, one of Australia’s long established venture capital firms, refers to this as ‘Exit Fear’. “Some founders simply don’t want to let go of their baby” says Niall.
“They have often put the best years of their life into building a robust business and the thought that someone else will take control is impossible for them to accept”. While they know that a sale is inevitable, they are simply unwilling to spend any time planning for it because that means they are acknowledging that they will be selling their business.
Exit fear is not just a characteristic of retiring founders; even younger entrepreneurs that have raised venture capital on the basis of a likely trade sale of their business seem reluctant to put the effort into preparing the business for sale.
Niall has had to deal with this situation many times over the years. “Most of them anticipate that they will not have a job with the acquiring firm and that creates a good deal of uncertainty around their future - even though they have a reasonable assurance that they will take away a good deal of money with the sale”
I found the same reaction many times in my workshops on selling a business. Entrepreneurs attend the workshop in order to better understand how to sell their business to a strategic buyer but often express concerns about life after the sale.
As one executive put it to me “I just can’t face the thought of doing another start-up - imagine having to go back to not having any support staff, no infrastructure, to have to watch every cent and go through the slow grind of building it up again. Why would I do that to myself when I have such a good life right now?”
On the other hand, there are those entrepreneurs that are only too eager to sell their current business because they have another one going on the side or they are keen to invest in their next great idea. Others have a strong desire to take time out to recharge their batteries before they jump back into a new venture.
Motivation is critical says Niall Cairns. “When we focus the entrepreneur’s mind on planning the exit strategy and the steps and rationale of why and what they need to do to put themselves in the best possible position to attain the best possible exit, then we find that this “fear of exit” dissipates and is replaced by the entrepreneur’s instinct for winning”.
However, after many years in the venture capital business, Niall Cairns acknowledges that part of their role in preparing one of their investee businesses for sale is that they need to work with the senior management team to prepare them for a personal exit. “If you want active support from the entrepreneur and the senior executives for the sale process, you need to ensure that they have a personal strategy for what they will do after the business is sold.”
When I have worked with entrepreneurs on this issue, their fears were nearly always dispelled when I am able to show them how to create a number of interesting and viable options. What few appreciate is that, in many cases, they don’t have to sell 100% of the firm at one time.
Often a business can be split up into several components, each of which might be suitable for sale to different buyers. One strategy is to split off a portion of the business, prepare it for sale and then use the sale to take some value out of the business.
This way the entrepreneur is realising part of their wealth. The sale proceeds can be used to invest in new ventures or set up a retirement fund. This strategy can then be followed over a number of years with different parts of the business.
Many entrepreneurs use the current business as a platform to launch a new venture. Once the new business is at a reasonable size, they can let go of the old one. Others develop an active interest in not-for-profit activities after the sale. Some become angel investors and have an involvement in several ventures. All it takes is a little creative thinking!