As we discussed last month, selling a business is a highly emotional and sometimes challenging process for even the most rational and staid entrepreneur. As M&A specialists, in the past fifteen years, we have seen every; flavour, brand and size of emotion known to man – we’ve seen behaviour that would make Charlie Sheen look grounded and well-adjusted.

We have had taken some serious learnings from these collective experiences. At the end of the day, the truth is, almost all Sellers go through a process that is a long and emotional rollercoaster ride, so its critical to establish and maintain a solid mental framework to see a transaction through successfully.

Selling Is Rarely Your Only Option – Make Sure its Right for You

There are hundreds of different motivations and situations that lead to the decision to sell but too often it is not what the entrepreneur actually wants. In our opinion the decision to sell is the only option in rare and extreme circumstances. Choosing to sell should only be determined after carefully considering all other alternatives from both personal and professional perspectives. There are almost always alternatives to an outright sale and selling rashly out of panic or fear is a recipe for leaving value on the table. Recapitalizations, licensing deals, lease arrangements, partnerships, sale of minority stakes or other non-traditional financing can sometimes address underlying issues putting pressure on a business owner that make him or her want to sell.

Are You a Seller or A Wanna-Be?

Having been exposed to one too many set of clients’ “cold feet” we’ve become (almost) masters of differentiating Sellers from Wanna-be’s. By our (somewhat Utopian) definition, Sellers are those who have looked deep inside themselves and decide that selling is the right course of action. Nothing is going to stop a Seller from getting the best price that the market will offer. Sellers are committed and unique in that they have somehow made peace with their decision to sell. They find ways, means and reasons to get deals done and this fortitude is critical. Sellers trust their advisors will bring them the top buyers, price and terms that the market will offer and they lockdown, close and move on to what business or life brings them next.

Wanna-be’s, on the other hand are the bane of the M&A professional. Wanna-be’s are tricky to spot and often camouflage themselves as Sellers. They think they want to sell but know deep in their heart it isn’t really in the cards at this point. They will sell if they get “the right price” and “want to delay and hold off for market conditions to change”.

They go through the motions but in the end they just aren’t going to sell, they’re going to walk from a deal. As advisors, we have a number of assessments and tests throughout our process to distinguish the Wanna-be from the Seller. We’ll look to stop the process the minute we look into a client’s eyes and sense real hesitancy or un-reconciled fear. But the best strategy for all business owners is to be brutally honest with themselves on whether they are a Seller or a Wanna-be.

The Business “Staging” Process

When an entrepreneur knows he’s a Seller, it’s never too soon to get ones “house” and head in order. We see this process as the business equivalent of the popular task known as “home-staging”. At its core it’s about putting the best face on the business and making sure not to leave surplus value “on the table”.

This process involves working with tax, legal, accounting and business advisors to assess and determine strategies and tactics to ready the company for sale from both the entrepreneur’s business and lifestyle perspectives.

There are a number of proactive initiatives that should be understood and often times deployed before the sale process begins. It’s also critical to get clarity on professional and personal; needs, goals and wants post-sale to provide direction on transaction timing and structure.

The staging process forces an entrepreneur to make some tough decisions and also get the process rolling through real planning and action. It’s a great first step, demonstrates intent and establishes an entrepreneur’s deal team.

Crystal Clear Expectations

Another critical tool in selling a business is defining clear expectations. While Sellers will take the best deal the market offers at that time and space, the best deal for an entrepreneur isn’t always about the top purchase price. It’s critical to get crystal clarity on wants and needs and turn these into expectations such as;

  • The entrepreneurs’ personal situation and plans for the future.
  • Valuation expectations.
  • Transaction structure and desired timing.
  • Whether or not the Seller will stay with the business and if so for what period.
  • Expectations and desires for Management team and employees.
  • Acceptability of natural buyers for the businesses (strategic vs. financial).

Its good to do research and get clarity on what is realistic in terms of valuation, transaction structure and to begin tracking potential buyers and transactions in the industry. It’s critical to engage an M&A advisor who can provide guidance and feedback with regard to what is realistic in terms of valuation and structure. However, a strong M&A process aims to manage and move multiple buyers into an auction-like process, which leads to maximum valuation. But a review of other factors that come along with a sale should also be considered.

The Take Away? There is something that happens to a Seller on a psychological (and often subconscious) level in preparing the business for a sale. Getting into a Seller’s mindset requires both a ‘gut check’ to ensure that selling is in fact the right action and planning on both a personal and professional level. For our most successful clients who receive top value for their businesses, arriving at the decision to sell is unquestionably a difficult one, but what separates the ‘Highly Satisfied’ from the ‘Fairly Disappointed’ is the commitment to the choice, the consultative process and the willingness to listen to and trust their advisors; they approach the task of selling with the same energy and fortitude they showed in building and managing their business.

The above was part TWO of a multi-part series, exclusive to the Wire called An Entrepreneurs’ Playbook for Selling A Business, presented by Jason Sparaga President & CEO of Ontario-based investment bank, Spara Capital Partners Inc. For more than fifteen years, Jason and his team have exclusively served the advisory needs of Canadian entrepreneurs, across nearly every sector, raising hundreds of millions of dollars through debt and equity financings, leading acquisitions and divestitures and always working closely with highly successful entrepreneurs.