The Emotions of Selling a Business

By Generational Equity


As we enter the new year, many of us are taking stock of where we are today and where we want to be a year from now, both professionally and personally. Even though so many of us are busy at this time simply getting caught up from projects delayed by the holidays, setting aside quality time to examine our priorities for the coming year can be extremely beneficial.

This is especially true for business owners. As our economy becomes more complex and interrelated, flying by the seat of our pants becomes riskier, and regular business planning is vital.

Although this applies to all aspects of your business (annually you should update your master business plan as well as your marketing, sales, HR, IT, and operations plans that feed into it), the most far-reaching, fundamental plan you can update each year is your exit plan. Your exit plan is usually the single biggest financial plan you will contemplate. Most likely you started your business on a shoestring and throughout the years with quite a bit of hard work, you have grown it into a much larger entity that is now worth a goodly sum.

Unfortunately far too many business owners delay their exit plans because they don’t want to face the inevitable: You are not getting any younger! And this is where one of the three legs of the exit planning stool comes into play (emotions) – here are the three components of any exit plan:

  1. How much will you need to net post-sale based on the goals for the rest of your life?
  2. When do you want to exit so that you can move on to your next stage?
  3. Are you emotionally ready to release the business to new owners?

The first two are easier to plan for than the third. In fact in our next post on January 9, we will delve into those two components of exit planning since the last one listed, in many cases, becomes the biggest hurdle we have seen in actually closing a deal.

Why Do Emotions Play Such a Large Role?

When we conduct our post-sale testimonial interviews, it is very interesting to hear about the process from the business owner’s perspective. As merger and acquisition advisors, our role is to guide the entrepreneur through all the components of a transaction from beginning to end. What we have learned throughout the years, and you hear it in our post-close testimonials, is that as the final hour of ownership draws near, the logical side of the brain that all along has been leading the process gives way to the emotional side of the mind, and a wave of feelings washes over the seller.

So you need to be prepared well in advance to encounter some of the following emotional responses as you get closer to selling:

  • Am I doing the right thing?
  • What about my family’s legacy with the business?
  • Am I going to miss my employees, many of whom have been with me from the start?
  • Is this the right thing to do for my customers?
  • Will the new owner respect my company’s place in our community?
  • Is money the most important feature of my deal? Are other issues equally important?
  • What am I going to be doing the month after the deal closes? A year later?
  • I really regret that my children are not taking over the family business.
  • What would my dad, the founder of the company, say if he knew I was selling?
  • Do I like the new potential owners? Will my employees?

These are just some of the emotions we encounter as we work with our clients. You need to take a look at this list and be ready for one or more of these to wash over you usually several times in the months preceding the deal closing.

Ultimately, the sale of any privately held company is completely different than the sale of a publicly held company. With a public firm, even with a limited number of outstanding shares, you have a board of directors typically making the decision based solely on financial and business issues. With a privately held company, especially one that has multiple family members involved, the logic of the decision is often battling with the emotions of the decision.

You need to prepare for this reality well in advance of the final weeks of negotiations. If your company has multiple owners, especially if they are all family members, you need to ensure that every owner has likewise considered the questions raised above. As logical as your deal may look on paper, you may be surprised at how some of these emotional questions become paramount when the goal line is in sight.

What Becomes Important at the 11th Hour?

It is interesting to me – and if you take the time to listen to our clients’ post-close chats, you will hear it too – how often the final value offered was not the ultimate decision driver. In many cases our limited auction process will yield several buyers who are very interested in the company. As our clients spend time getting to know each one, more often than not the price being presented is topped by these phrases we hear from our clients:

  • I want to do this deal with Larry because I trust him.
  • I prefer buyer Y over X because I know he will maintain our legacy.
  • I think buyer Z will take better care of my employees than any of the others.
  • I like this guy because he has some great plans to grow my business.
  • If I need to stay on during a transition period or for an earn-out, Bob is my choice because I know I can work well with him compared to the others.

Now you may look at this list today, months, or even years before you are going to exit and you probably are saying to yourself, “I would NEVER let such subjective issues impact my decision making process.”

Well I hate to tell you, more often than not, they do!

Again, in our next post we will examine the two more logical legs of the exit planning stool: how much you will need post-close and when you want to move on. We worked in reverse today because based on our experience and our post-transaction interviews, it is clear that private companies are made up of humans that, no matter how logical they may be, have feelings that transcend their lives outside of work and ultimately are part of the selling equation.

If you would like to learn more about exit planning, stay tuned for our next post where we will cover the remaining components. If this article has peeked your interest in finding out even more before then, or if you have personally felt some of these emotions as you have considered your exit plans, give us a call at 972-232-1121 or fill our a contact form and one of our M&A counselors can walk you through our process that helps business owners manage a balance between the logical and emotional sides of selling.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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