The Importance of Pre-Sale Planning

When business owners decide that a third-party sale is best for them, many of them want to jump straight into the sale process. Too often, these owners neglect pre-sale planning, which can destroy their prospects of a successful sale and lead them to taint the marketplace.

I’d like to share a story that shows what happens when pre-sale planning goes ignored, as told by a BEI member.

During our annual year-end planning meeting, one of my clients, a successful owner, brought up the idea of selling his company. We had already started improving the company’s value drivers and had documented the value of the company, but he wanted to start building a marketing strategy to sell the company and begin interviewing transaction intermediaries to orchestrate the sale.

Within six months, we had put the company on the market, and several buyers had submitted offers in excess of my client’s financial security goal of $4 million. This kicked off a bidding war. The buyers pushed their bids from $4 million to $6 million, and then to $9 million and $11 million.

At that point, the business owner disappeared. I don’t mean that he stopped returning phone calls or responding to emails. I mean that nobody — neither friends, family, nor colleagues — could locate him for days.

After much worry about his welfare, the owner reappeared. We were all relieved that he was alive and well, but I had to warn him that he was dangerously close to losing the deal of a lifetime. This owner’s response took my breath away. “Call off the deal. I’ve thought long and hard about this and I don’t want to sell. I have no idea what I’d do with myself if I didn’t have my company.” I called my client’s investment banker and had him withdraw from the transaction.

If you had been in that advisor’s shoes, what would you have done? What could you have done? These are hard but common questions for advisors to face. Fortunately, there are three ways to avoid issues like this in third-party sales.

1. Have a Process

Having a pre-sale planning process that you can implement before a business owner goes to market is critical to a successful sale. As part of the process, you’ll uncover the owner’s exit objectives, which include when the owner wants to leave and how much the owner needs to exit the business with financial security. Of equal importance is discovering the owner’s values-based goals, that is, goals that go beyond financial considerations. In the above example, the owner hadn’t articulated his values-based goals (in this case, what he would do without his business), which led to disaster for the sale. Investment bankers can address these issues by clarifying what owners expect from a sale and asking owners what life after a sale looks like.

2. Create (or Join) an Advisor Team

Business exits typically require expertise from various professional fields. My company, Business Enterprise Institute, tells exit-planning advisors, “You can’t (and shouldn’t try to) do it alone.” When planning exits, most investment bankers focus on preliminary due diligence and making sure the business is ready for market. This critical function for investment bankers nonetheless overlooks other important aspects of exit planning, including understanding an owner’s values-based goals.

By joining an advisor team, investment bankers can differentiate themselves by providing their much-needed services to a network of advisors who work directly with business owners, opening up new business opportunities. By going farther and creating an advisor team, investment bankers give themselves a competitive advantage, because they can call upon the advisors appropriate for addressing the numerous issues that confront owners as they exit their businesses.

3. Become a Certified Exit Planner

Certified Exit Planners have specific training in guiding owners through each step of the exit-planning process. They assure that all advisors who work with the owner are focused on achieving all of the owner’s goals, whether financial, values-based, or otherwise. Most importantly, they have the tools, resources, and training to implement comprehensive pre-sale planning, helping owners avoid snags in the process and work efficiently, which saves the owner time and money while adding a highly sought differentiation factor to the investment banker’s practice.

Pre-sale planning often goes beyond due diligence, and that’s something that most business owners fail to realize until they’ve proceeded too far in their exit-planning processes. Investment bankers can capitalize on this by familiarizing themselves with common obstacles business owners struggle to overcome and addressing those obstacles. The best way to do that is having a process, being a part of an advisor team, and completing exit-planning training.

If you’d like to learn more about how BEI helps advisors bolster their ability to help business owners through the pre-sale planning process, please visit my website. BEI provides tools, training, and strategies to position investment bankers to become their business-owning clients’ most trusted advisor.