If you follow NFL football at all, you were probably riveted by the storyline of Shedeur Sanders, whose historic slide from first-round draft prospect to pick number 144 in the fifth round was the biggest story of the weekend. There are some parallels to selling your business, and some lessons to be learned from this year’s draft.
First, if you’re selling your business, it’s your numbers that get you a look. Whether it’s yards and completions, a winning record, or, in your case, P&L statements and revenue growth, the market looks at data first. Is your business going to generate enough income or growth to meet the needs of the buyer? Is the business on an upward trajectory, or has it already peaked? Buyers make predictions based on the numbers.
That’s the easy part.
The hard part is determining whether the buyer and seller are a good fit. Fit goes both ways; the buyer needs to believe that they’ll be able to manage the company well and build on its current success. The seller needs to believe that the new owner understands and cares about the business they worked so hard to build, and that they will take care of its people and customers.
That’s why I put together a call with the buyer and seller very early in the process. I want them to get a feel for each other, decide whether they like and trust each other enough to work out a deal. The diligence process and negotiations can be challenging, even contentious, so a good relationship is essential to getting through the process with minimal stress and conflict.
Most sellers are selling their company for the first and perhaps only time. They’re brand new to the process, and they’ll only get one shot at getting it right. I’ve been selling companies long enough to know that a good company might not always be a good fit for the buyer. That’s just business.
But sometimes, even a very good owner can hurt his own prospects. The initial call between the parties is like an audition (or pro day at your school.) A buyer wants to see authenticity, honesty, and accountability from the seller. If the seller leads with all the reasons he didn’t get as far as he wanted (no one wants to work, the market sucks), he’s going to lose the buyer right away.
If the seller tries to dominate the conversation by telling the buyer how good he is, trying to sell the business instead of sharing information, it can also kill the chemistry. Your business is what it is – the numbers are right there for the buyer to see. Part of what the buyer wants to know is what they can expect from you during the sale: fairness and flexibility, or a win/lose, take no prisoners mentality? Every negotiation runs into a bump or two, and how you start out is probably how you’ll go on.
The stakes are even higher if the seller is financing part of the deal or staying on to manage the company for a transitional period. Now you’re in business together, partners for perhaps the next few years. The buyer needs to believe that you can work together effectively and make decisions that are in the best interest of the company, rather than just one person. No one should think they’re bigger than the business.
I’ll give a seller the same advice I would have given Mr. Sanders (for whom I wish all the success he’s due): respect the process and the other people involved in the negotiation. They have options, and they may opt out if they’re worried about the intangibles, no matter how good your numbers are.
