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Missing the boat or rocking it?

It is a common phenomenon that many entrepreneurs who have built a business to a certain size are struggling when it comes down to selling the company.

Let’s say that someone founded a company 7 years ago, based on a revolutionary invention in the medical technology business. After a few years of getting the product to maturity and adapting it to various applications that are compatible with the market, the tipping point is reached and the business explodes (in a positive way, ie revenues are going up in no time).

The business model has been cleverly implemented and supports high scalability with a minimum of capital cost. Within 3 years the business has developed into a €10m business with an EBITDA ratio of 33%. The following financial year promises a doubling of revenues with similar profitability. This means that EVA and hence company value are going through the roof!

Speedboat

Let’s say that the owner and founder is 64 years old. He owns 100% of the shares. No successors. His plan is to sell for at least €15m and enjoy life with his wife; maybe to work on a few advisory or invention projects as he feels like.

He talks to an advisor who exactly understands what the potential of this business is and who disposes of a global reach to identify and close with the best suited buyers worldwide. The advisor is very competent, has great references, and makes a fair proposal to sell the company.

The value of the business is estimated by professionals of the advisor to be at least €40m.

No brainer, isn’t it?

Well, far from it.

In this fictitious, yet realistic scenario, the owner just can’t make the first step towards a sale of his company. And he’s not an exception!

Let’s have a look at 5 major reasons why owners of successful companies like the one described above are regularly missing the boat instead of rocking it (without tipping over…).

And some ideas on how you can overcome this dilemma…

1 Can’t let go

Entrepreneurs who have built something and have made it a big success tend to cling to it.

That’s more than normal. One day, they make a decision to let go, the next, they enjoy doing what they do so much that they can’t let go.

Not easy to get out of this dilemma.

Remedy: Write down all the things that you love so much about being in your business and write down why you have to do this forever. Write until nothing new enters your head. Then put it aside, thank yourself for the great achievement, and tell yourself (maybe in front of a mirror) that you have achieved a great deal and that now it’s time to enjoy other things.

The third step is to write down what you now have to do at first to start selling your company. Do this immediately!

2 Lack of trust

This issue relates to the successors as well as advisors who are proposing to support you in the selling process. As far as your successors are concerned, you have maybe built up someone from within. If you don’t trust this person, you have a problem anyway.

Remedy: You can choose a successor from outside before you sell and stay with him or her until the necessary trust is there. Just in case, you don’t have anybody in your company who can run the business after your departure. Alternatively, your advisor chooses your successor together with you and you keep a right to veto to make sure the person who you feel is right for the job is chosen.

As far as advisors are concerned, you should only work on recommendation. If entrepreneur fellows of yours have made good experiences with certain advisors have a look at them.

Unfortunately, the industry is packed with “black sheep” cashing in retainers and not delivering anything.

On the other hand, please do not work on a 100% variable fees basis only.

Most advisors don’t work seriously for you if their work before the sale is not paid. You can always negotiate that the fixed fees be set against the success fee and even combine the payment of fixed fees with milestone based payments.

But never ever go for 100% variable. It will not produce the necessary commitment. Neither on the advisor’s side, nor on yours!

3 “It’s not the right point in time”

Well, it’s never the right point in time, is it? The grass is always greener in the future, so to speak.

Remedy: Not a lot to say here, really. JDI – Just Do It. Start working on that sale.

Make the first step by analysing your company’s strengths and weaknesses and eliminating the weaknesses to make it ready for sale.

On the tax, finance, and contractual sides of things talk to your lawyers and tax advisors to certify that everything is in the green. If not, correct the things which need to be corrected.

And then just start the process. Make the first step now.

4 Operational “obligations”

This is another pitfall when planning to sell and just not starting the process. The owner(s) are working in the business all the time instead of planning and blocking time to work on the business, ie its sale.

Remedy: Block the time to work on the necessary steps to prepare the sale. Involve your management team and delegate. Make sure that everyone has signed an NDA, given the fact that you don’t want your employees to get nervous.

You also want to have total control over your communications in order to make sure that internal and external stakeholders as well as all employees get to know what you want and when you want them to know it.

If you just don’t find the team, ask your advisor to come in as an interim manager first to organise the vendor due diligence, agree the results and next steps with you, and then manage the process for you.

5 Overwhelm

Yes, there is lot of work and you will probably not know where to start.

You are most probably used to the complexity, but the combination between operational and strategic project-based work might be a challenge. That is why most entrepreneurs don’t even start the sales process and end up being under pressure and making rushed decisions.

Remedy: You need a plan for your project and you’ll need a team to work with you on the sales process. This team can be internal, external (by an advisor), or a mixture of both.

Nominate one person who is your single point of contact (SPOC) and ask him or her to give you an overview of the roadmap and the next three steps ahead.

Plan weekly status meetings with your SPOC to control the planning and implementation of the sale. This means for you that you are in control without the hassle of doing all the work yourself and getting lost due to overwhelm.

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