Mistake number one is boutique owners being unclear as to what they want from the sale.
They must understand why they’re selling and Greg encourages everybody to take that seriously because it’s foundational. If you’re unsure of who you are, you will be unhappy with the sale. If you don’t know where you are headed, you will be unhappy with your sale. There’s no amount of money that will change us. Greg knows from personal experience and speaking on behalf of those whom he has helped sell their firms that after the sale is complete, there’s no going back. So be sure that you know what you were doing before you go down this path.
Mistake number two is sometimes boutique owners try to sell an unsellable business.
Most boutiques really are unsellable. It’s not enough to have a successful boutique. Your firm needs to be attractive to a buyer and that requires you to look at your business as an investor would, not as an operator. The investor starts by listing all the reasons not to buy your business, and the owner starts with a list of all the reasons to do a deal and this gap often cannot be closed. So prior to selling, be sure that you have something worth buying and before you take your business out to sell, make sure it’s somebody might want to buy it.
Mistake number three is it takes years potentially to sell a boutique.
Some owners try to sell their firm in a matter of months. This results in many failed attempts or worse, a lot of forced sales. The process to actually conduct a transaction is somewhere between six and 12 months, most often around nine months. However, the process of preparing to sell can take two to three years and you want to take your time preparing to sell because you want to exit on your terms. It takes time to stack the deck in your favor and as they say, you only have one chance to make a first impression. So it’s best to be ready, so don’t force it and understand what investors are looking for. Give yourself time to make sure that your business has all the attributes that would make it attractive to a potential buyer and that’s going to take two or three years to get ready and then the actual transaction itself might take around nine months.
Mistake number four is that boutique owners under-invest in a succession planning which can lead to seller’s regret.
After you sell, you’re going to want to see your boutique do well without you. You’re going to have many employees you care about who are still employed by the firm. If you hand over your baby to a stranger, they may destroy it. A big bank balance does not compensate you enough for this situation. Greg recommends spending years grooming your successor and make sure that they build on what you have created when you sell your firm. It should be a great moment in your life and you don’t want to have any seller’s regret. Seller’s regret will show up with after you leave if within a year or two you don’t even recognize the firm and people that you care about have been mistreated. So be sure that you really know what you’re getting into before you sell it.
Mistake number five is where entrepreneurs think that they can sell a business on their own.
This results in tactical execution errors that can cost the owner millions. Founders as a group have a high-risk tolerance level and they are supremely confident in their own abilities. They approach the selling of their business as just another problem to solve, or maybe just another sales campaign, and they assume that they can figure it out. This is a big mistake and this is not an area to go cheap. Hire the best advisors that money can buy (investment bankers, attorneys, accountants) and let these advisors guide you through the process. This is where you truly get what you pay for.
Mistake number six is where boutique owners often get attacked after the sale and they take it very personally.
This may cause and does cause sellers’ regret. It is human nature that those that you are leaving behind are going to be jealous. They’re going to feel that that they were cheated and underappreciated and sometimes they begin to tell a story that’s not based in fact. Rather, they tell themselves a story that they need to tell and make themselves look good and feel good. If you are selling and you think this isn’t going to happen to you, it is. Don’t take it personally. This is just business. You’ve created the wealth and therefore you’re the one to realize it. Don’t apologize for that. Those who helped you along the way have benefited and they’re going to continue to benefit. Rest your head peacefully on the pillow at night. All that matters is what you see in the mirror.
Mistake number seven is to be sure to understand who the business is being sold to and what their motives and motivation are.
This is where selling a services business is very different than selling a product business. A professional services business would fall into that category and this is really important, particularly if you’re on an earn-out or you’re rolling some equity. Some small business owners that might not understand those terms and earn-out say that you agree to a purchase price and that the proceeds come to you over time based on hitting some milestones or rolling some equity (this means you sell a portion of your business, not all of your business, and roll your equity into the New Deal with the intent of selling the rest of it or another portion of it down the road. So if you fall into those two categories, which the majority will, who you’re selling the business to is really important because you have proceeds yet to come. Sellers must be really sure that they know what the terms are, that there are no unwanted surprises that crop up. The buyers own the asset. Once they sell it, they’re entitled to do whatever they want with it. If the seller doesn’t agree with their plans, do not sell to them.
Greg Alexander, founder of Collective 54 (www.Collective54.com), a unique and powerful membership organization for owners of professional services firms trying to grow, scale and sell their firm, has unique insights to demonstrate how this theory is proved and how to avoid making these mistakes.
Mistake stock photo by Coompia77/Shutterstock