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The Major Pitfalls in Selling A Business – No. 3 – Allowing Emotion to Overrule Reason

Selling a business is something that most business owners will only attempt once in their career.  With an estimated 70% – 90% of their total net worth tied up in their business, they can’t afford to make a costly mistake, but their success in running their own business generally doesn’t prepare them to handle one of the largest and most crucial financial transaction in their life.

This is the third in a series of articles exploring some of the common pitfalls in selling a business:

Major Pitfall No. 3 — Allowing Emotion to Overrule Reason

By the time most owners come to sell, they’ve invested most of their working life in building the business to its present size and profitability.  In addition to their considerable investment of time and money, they understandably have a tremendous psychic and emotion investment as well.  Many owners, and especially founding owners, tend not to respond well to questions about why things are done a certain way, or suggestions on ways the business might be further improved, or observations that the business may have certain systemic weaknesses even while acknowledging that it has many strengths.

It is for similar reasons, I suppose, that residential real estate agents prefer/insist on showing a home to a prospective buyer WITHOUT the owner present.  This is obviously not feasible – or even desirable, in most cases — when showing a business.

Because selling a business can be emotionally gut-wrenching and that emotion can spill over into irrational reactions to prospective buyers in the sales process and potentially damage or even derail an otherwise successful sale, a principal role of the M&A intermediary, is to keep the process and the discussion as objective and rational as possible.

Determining the fair market value is one issue sellers commonly have difficulty with. They are inclined to associate value with the years they put into the business, the investment they made in plant and equipment, and how much it would cost to replace it all, rather than from the perspective of what level of investment/acquisition price will the business support today with its current and projected profit and cash flow and still give the investor/buyer a fair return on his investment.

The successful sale of a business requires a carefully planned approach in which each step is done right.  While owners are experts at successfully running their own organization, few are equipped to navigate this complex process and, therefore, they are at a distinct disadvantage.  The use of professional advisors who can provide the expertise, support and representation required to sell a business for the best price and terms will typically more than pay for itself.

If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free, confidential, consultation with us, have them contact me at mikeertel@legacyadvisorsgroup.com

By: Mike Ertel, Transworld M&A Advisors