Don’t try this on your own! Emotion gets in the way of selling your own business

By Dave Driscoll

Selling your business is extremely emotional. Many thoughts go through your head: What will I do? How will I be perceived by my peers? How will I define myself? Will I financially be able to maintain my lifestyle?

Add to the emotion, the assembling and organizing of required information, the time demands, the question of a realistic value and price, and the determination AND patience needed… the result is overwhelming anxiety. 

Several factors make it hard to manage and negotiate the sale of your own business:

Objectivity. Negotiating on your own behalf is filled with emotions that cloud good judgment. You probably have an idea of what your business is worth, but what is that based on? A formal business market valuation? What you buddy sold for in Philly? Your gut? How much cash you feel you need from the sale to live the way you want after a sale?

I can tell you from firsthand experience, the business valuation is the only relevant information. You are so close to the situation that it’s nearly impossible to objectively evaluate value and set a realistic price. The buyer will challenge you and if you cannot support your price confidently, you will lose that debate.

Distraction from your current business. The buyer’s questions and requests will require immediate, thoughtful responses. Buyers will not wait until it’s convenient for you to provide the information they want. And realize that after you do provide the information, they will have follow up questions…this cycle can continue for weeks or months.

Meanwhile, you must run your business without a hiccup, without letting your staff know you are considering selling the business. If the stress of your business is causing you to sell, imagine the stress of trying to sell it yourself, on top of running the business.

Deal structure. Selling a business is not all about price; receiving the value with the least amount of future risk is very important. Buyers want to minimize their risk as much as possible, and an uneducated seller can be an easy target. Buyers will request seller financing, earnouts, installment payouts, client retention requirements, and more to push risk onto the seller, even after the sale. By this point, sellers are exhausted with the process (and managing their business) and likely to make decisions without all the facts or just give in.

The cost of selling your business yourself.  “What cost?If I do it myself, I’m not paying a broker a commission!” You will be in for a surprise if cost is your primary reason for not using a broker.

You will need to pay for accountant services from the start. Most brokers are not accountants, but they are familiar enough with profit and loss statements and balance sheets to assist in getting buyers the fundamental information they need. Brokers can also coordinate data gathering with your accountant while YOU continue to run your business.

You will also need to hire a transaction attorney from the beginning of the process. Again, brokers are generally not lawyers, but they should be well versed in negotiating price and deal structure. A broker can efficiently manage the process through the Letter of Intent and into due diligence. With a broker, the seller doesn’t need to bring in the lawyer until those protections are needed to finalize the binding Purchase Agreement.

Lawyers and accountants are extremely important when selling your business…and they are expensive because they are paid by the hour whether the deal is completed or not. Expect that the sale of your business will take six to 18 months, with three or four interested prospects before the actual buyer is found. Many thousands of dollars can be paid to lawyers and accountants for initial conversations that could have been managed by a broker and may not even lead to a sale.

Brokers usually require a listing fee to demonstrate seller commitment and co-investment in the expensive development process. Beyond that, brokers are only paid if the business is successfully sold; there is no hourly or monthly billing. Statistics prove that a good broker generates significantly more value for the seller than the cost of their fee.

If you choose to sell your business yourself, be prepared for the emotion, distraction, time commitment, and the hefty hourly cost of professionals.

Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation and exit planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at [email protected] or (314) 303-5600.

As seen in Dave Driscoll's column in St. Louis Small Business Monthly
As seen in Dave Driscoll’s column in St. Louis Small Business Monthly

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