Do you know the top mistakes of selling a business?
The statistics say it all. Up to 90% of liquidity events fail. For "successful" liquidity events, sellers leave 50% to over 100% of the deal value in the buyer's pocket.
Knowing what not to do in business and life is as important as knowing what to do.
When you know the top mistakes of selling a business, you do two things. You both protect yourself, and you ensure you capture the best deal and not any deal.
The sale of your business is the largest and most important financial decision of your life. You don't want to have your hard work, and your future left to chance.
Who am I, and how do I know?
I started my eLearning business after graduating from my MBA program. I had no money, experience, or team. The truth is I had no business being in business.
My saving grace was my grit and determination, which had me welcome success.
With success, I received a 7-figure offer from a smart and experienced buyer.
I said "no" to the 7-figure offer and "yes" to mastering the art and science of a liquidity event. Then, two years later, I said "yes" to a 9-figure offer from a different buyer.
Today, I pay it forward. I help business owners through the Deep Wealth Experience. At the heart of the Deep Wealth Experience is the 9-step roadmap.
The 9-step roadmap is what I created to welcome my 9-figure exit.
Five powerful strategies that protect you from the top mistakes of selling a business.
Do you know what these five strategies are?
Success is knowing what not to do as much as knowing what to do — Jeffrey Feldberg
One of the top mistakes of selling a business is not realizing that you put yourself out of business.
Your liquidity event has closed. Congratulations!
What will you do now?
You signed a non-compete preventing you from starting a competing business. The last thing your buyer wants is competing with you the day after the liquidity event.
Most business owners know they are signing a non-compete. One of the top mistakes of selling a business is not understanding what you signed.
Know with certainty that you will not be able to start a similar business for three to five years.
Your two choices are to either retire or find a new career.
If you’re like most business owners, your business had you follow a routine that you enjoyed. You had rituals for how you spent your time.
If you did things right, you prepared for your liquidity event. You understood that preparation is what drives up the value of your business.
But are you prepared for life after your liquidity event?
How can you avoid one of the top mistakes of selling a business?
Before starting the process, think about what you’ll do after the liquidity event. Find activities and a rhythm that has you recharged and fulfilled.
The best time to start was years ago. The next best time is today.
Another one of the top mistakes of selling a business is a mistake that can cost you the deal.
Do you know about this mistake?
To keep your secret is wisdom; but to expect others to keep it is folly — Samuel Johnson
Another one of the top mistakes of selling a business is assuming confidentiality.
At the start of a liquidity event, it’s easier to ensure confidentiality. Through signed NDA’s, you feel protected with key employees and a few advisors.
As the liquidity events progresses, more people become part of the process.
Conventional wisdom says that everyone respects the NDA.
In this instance, conventional wisdom is wrong.
A quick story.
While waiting to board his flight, my business partner was speaking with a stranger. The stranger was not in any way involved in our liquidity event but knew all about it.
Someone leaked the information.
One of the tops mistakes of selling a business is assuming confidentiality.
Most business owners neither have the time nor the money to find and prosecute the violator of the NDA.
What can you do?
Step seven of the nine-step roadmap focuses on timing and communications. Before starting your liquidity event, create a narrative that covers employees and clients.
The narrative is truthful but selective in what’s shared.
Your employees, as an example, will see an increase in visitors and meetings in your office. Your narrative talks about how you’re exploring ways to grow the business. When you’re proactive, you prevent gossip and rumors. You also save your deal.
The last thing you want is to have employees and clients leaving out of fear from rumors and gossip.
Ready for another one of the top mistakes of selling a business?
It wasn’t raining when Noah built the ark — Howard Ruff
One of the top mistakes of selling a business is assuming you’re paid in all cash with no strings attached.
In step three of the nine-step roadmap, you master the art of thinking like a buyer.
At the very least, your future buyer wants an earnout and escrow.
Conventional wisdom and your investment banker tell you to expect an earnout.
Conventional wisdom is wrong.
Buyers want an earnout to remove risk. Also, some buyers want an earnout because they have no intention to pay it.
One the art side of a liquidity event, and the nine-step roadmap, is preparation. When you’re prepared, you remove the leverage from a buyer to insist on an earnout.
Preparation combined with an auction helps to ensure that you keep an earnout off the table.
Besides not having an earnout, your mission is the smallest escrow amount possible.
Yes, cash is king, but only if you’re prepared.
Through preparation, you can reduce the amount of escrow. There are no guarantees in life. There are also no guarantees that you will receive your entire escrow.
Effective preparation is doing two things. First, you find and remove the hidden skeletons in the closet. Second, you find your hidden Rembrandts and put them out for public display.
In the process, you increase deal certainty and enterprise value. But, while you’re at it, you also ensure you receive the largest amount of money.
One of the top mistakes of selling a business comes from the letter of intent.
Do you know what you should and should not do to avoid this mistake?
The more I see the less I know for sure — John Lennon
One of the top mistakes of selling a business is believing that the Letter Of Intent (LOI) is a done deal.
Your LOI is the start and not the end of the process.
When you sign an LOI, you lose your leverage as you cannot talk with other buyers.
This is why it’s essential that you’re prepared before starting your liquidity event. During the LOI exclusivity period, all eyes are on you and the business.
Your future buyer is looking for mistakes to happen.
Some of the financial projections provided will occur during the exclusivity period. Every mistake made can lower the enterprise value or provide reasons for an earnout.
Neither scenario is desirable.
One tactic some buyers deploy is the “bait and switch” approach. A buyer provides a higher enterprise value in the LOI.
You become excited and imagine what you’ll do with your new wealth.
After the completing the diligence period, the buyer lowers the enterprise value. The buyer points to the mistakes made and skeletons in the closet identified.
By this point in the process, deal fatigue sets in, and business owners agree to the lower enterprise value.
How do you protect yourself?
The nine-step roadmap of preparation helps you remove the skeletons ahead of time. But, at the same time, the power of an auction gives you choices with other buyers.
When it comes to the top mistakes of selling a business, this last one takes most sellers by surprise.
Would you like to know what this mistake is and how to protect yourself?
I just want to live happily ever after, every now and then — Jimmy Buffett
One of the top mistakes of selling a business is believing a post-exit life is always happily ever after.
The fallacy most business owners believe is that money brings with it a happily ever after life.
Money buys many things and can make life better. But money does not buy happiness.
Preparing to sell a business must include preparing to live life after the deal closes. Unfortunately, most business owners leave life after the deal as an after thought.
Let’s do a thought experiment.
Imagine that your deal has closed, and you’re now wealthy. So you buy your toys and travel the world first-class in every way.
Success without fulfillment is failure.
Part of your preparation must include how to optimize your life after the sale of your business. Your days, weeks, and months keep you busy when you own the business.
Most business owners find it disheartening and even depressing when they’re home alone. Friends and family are living their lives and don’t have time to “play.”
Don’t expect sympathy from your family, friends, and neighbors. To the people in your life, they see you as living the dream. After all, you are wealthy!
How do you optimize your life for happiness after the sale of your business?
Starting today, find activities that leave you feeling recharged and fulfilled. Take longer vacations. Build white noise into your daily life and rhythm.
When you optimize for happiness today, you’ll be thanking yourself tomorrow.
When you know both what to do and what not to do, you avoid the top mistakes of selling a business. Along the way, you protect yourself and ensure that you capture the best deal and not any deal.
At the heart of a successful liquidity event is the level of your preparation. Preparation enabled me to say “no” to a 7-figure offer and “yes” a short while later to a 9-figure offer.
When you’re prepared, you have the certainty that you’ll capture the maximum value. When you know, instead of believing, you do the right thing at the right time.
The 9-step roadmap of preparation protects you from being a statistic. Up to 90% of liquidity events fail. Of the “successful” deals, most business owners leave 50% to over 100% of the deal value with the buyer.
What do you do, and where do you start?
When it comes to avoiding top mistakes of selling a business, start with the first strategy. Stay with the strategy until you’ve mastered it, and then move on to the next strategy. Repeat the process for all five strategies.
The best time to prepare was years ago. The next best time is today.
You can do it. I know you can.
Here’s to you and your success!
Your Biggest Raving Fan,