Preventing Seller’s Remorse in a Mid-Market Deal
How to prevent seller’s remorse and leave your business feeling positive about the process.
Successfully owning and growing a middle market business requires a great deal of work and commitment, and as a result, entrepreneurs can often find their companies difficult to part with when the time comes for a transaction. Many of these owners and entrepreneurs are unfamiliar with the M&A process, and as a result they enter into the transaction process without the knowledge or emotional preparation to complete an ideal sale. This leads to an unfortunate condition: Seller’s remorse.
The good news is that there are steps owners can take throughout the process to protect against this unpleasant state of worry and regret.
Hiring a competent M&A advisor will give you access to someone who knows the ropes of the deal business. Talk to your M&A advisor about finding the right resources to educate yourself on all aspects of the sale.
For example, there are probably things that you didn’t think about regarding the financial impacts of the transaction. Owners often don’t realize that buyers will most likely want them to pay off the company’s long-term debts as part of a sale and to transfer a reasonable amount of working capital.
Also, entrepreneurs don’t fully appreciate the complexities and magnitude of tax liability that will be incurred as part of the transaction. Prevent any confusion or misunderstanding by hiring an accountant and sitting with them to try and figure out the implications of what the deal are. Being educated will help you feel more in control of what is going on and more understanding of all of the steps.
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Set Realistic Expectations
Setting sellers’ expectations of value is also crucial to avoiding seller’s remorse. Many owners hold an inflated perception of their company’s value and don’t consider a buyer’s expectation of a return on its investment.
One of the biggest misconceptions occurs when a seller’s business is poised to do better after the sale with additional investment by a buyer. Owners often think this means buyers should be paying based on the fact that the business is expected to do well. The reality is if the buyer is the one growing the business and taking it to the next level, they’re not going to pay extra for the value they catalyze. Sellers often think they should get paid for what the company can do rather than what it’s currently doing, but most of the time that’s an unrealistic expectation.
To avoid holding inflated expectations, a seller should analyze his or her own goals for wanting to do a transaction and to pinpoint what they are trying to accomplish with a transaction. From there, they should consult with their advisor to measure those expectations against the reality of their situation.
Understand the Outcomes
One of the key steps to take in preventing of seller’s remorse is gaining an understanding of what a positive outcome will look like. There will be a range of valuations and deal structures in the sale of your business, so you must have realistic expectations of what a final deal will bring.
While it is important to remain flexible to achieve maximum value, consider in advance what sort of outcomes would be acceptable to you. Do you want to reinvest in the company after the transaction? What do you want your role to be in the company after sale?
Also, in evaluating the opportunities, remember that the buyer that you select will be your partner for a couple of years. The downstream of the transaction and the transition period may be longer than you think. As previously discussed, keeping realistic expectations throughout the entire deal is crucial.
It’s not unusual to remain with the company for one or more years after the conclusion of the transaction. Obviously, the amount of assistance depends on the nature of your company and your goals. Many sellers who sell to financial buyers continue to run their company for many years after the original sale.
Pull the Trigger
Owners who go through a thoughtful and well-organized sale process are usually very happy at the end of the day because they have been able to look at a variety of opportunities and understand what the possibilities were. They ultimately are able to pick a good partner for themselves.
Preventing seller’s remorse is really all about being educated and feeling comfortable and knowledgeable about the deal. Once you understand all of that, the chance of getting seller’s remorse goes down and you can leave your business feeling positive about the process.
Written by Michael Schwerdtfeger
Michael Schwerdtfeger is a managing director at Chapman Associates, a nationwide middle market mergers and acquisitions firm specializing in helping business owners and entrepreneurs obtain their ideal growth or exit strategy.