Greed, pride, and an array of other human weaknesses can get in the way of a good exit. We speak to entrepreneurs about their triumphs and regrets in selling their businesses.
‘Entrepreneurs often believe that if they started a business and own it, they are skilled enough to sell it. That often isn’t the case.’One CEO who has participated in three exits believes that selling a company requires skills and knowledge that will put most business owners ‘outside their comfort zone’.
Successful business owners have all got egos - its part of their make-up. But it’s also true that they don’t know what they don’t know. It’s not until the exit that this becomes clear.Here, entrepreneurs who have earned their exit stripes offer a guide to making your exit a heavenly, as opposed to hellish, experience…
1. Pride...
A know-it-all tendency is natural for people who have built winning businesses. The solution is to swallow your pride and ask for guidance.
‘Everyone was delighted with our exit,’ says our CEO. ‘But we could have got there faster, cleaner and in better shape from a valuation point of view if we’d had someone to help us.’
An experienced mentor would have pointed out that the contracts Barlow had with many of his government clients were, like many public sector contracts, non-transferable to an acquirer. Since nearly half of the business was with the public sector, it was a critical oversight.
One client which developed a chip for USB devices was sold in an all-share deal worth several.‘At an early stage, Copernicus identified the need for a chairman for the company who had already sold a business while acted Copernicus as advisors who could help maximize our value,’ says our client. ‘It’s what we classify as “grey hair”; someone who had been there and done it before.’
The company did however decline our tax advisory service.
To his chagrin, he ended up paying full tax on the shares he received in return for his company. ‘I’m still quite bitter about it,’ he states. ‘To anyone selling a business, I would say get good tax advice, and make sure that you pay for it.’
2. Complacency...
Most first-time business sellers underestimate the amount of time, effort and sheer hassle involved in a typical sale.
One MD describes his exit to us as ‘mind-blowingly onerous’. After eight months of negotiations, he and his acquirer traveled to Oxford with their respective legal teams to seal the deal.
‘I expected it to take a day. It took four days, and each one of them we were up until two or three in the morning. At some points we were on the point of saying, “Let’s just get a cab home and tell them where to go.”’
Unless you’re well prepared for it, this emotional and physical strain may cloud your judgment and affect the smooth running of the business at the most critical point.
Be warned ‘If you are selling, you have to understand that you are giving up the business entirely, and to see it as a commercial transaction. Personal feelings shouldn’t come into it.’
3.Greed...
Wanting to get the best valuation for the company you have slaved over is understandable. But asking for too much can be a turn-off for prospective buyers, according one entrepreneur, who sold his own direct mail business recently.
‘Overvaluation is very, very common,’ he states. ‘If you’re a start-up and you pitch it too high (or too low, for that matter) potential investors will just walk away.’On the flip side, there’s a danger of being seduced by what might be an illusory gain. The sale of a computer training business to AIM-listed Adval Group in an all-share deal is an example.
‘If you are selling purely for shares, your destiny has been handed to somebody else,’ he says. ‘Inevitably, there will be a lock-in period, so you can’t crystallize your gains for some time.‘It doesn’t represent an