The Emotional Aspects of Selling Your Business→

Selling a company is an incredibly difficult, confusing, and time-consuming process, especially for first-time entrepreneurs like myself. It's a complicated journey with numerous intricate steps, potential pitfalls, and tricksters along the way. The hard truth is, selling a business you've built is emotional. Feelings of guilt, attachment, loss, and uncertainty are natural given the immense commitment required for success. This post is part of a series where I hope to share lessons learned and over a decade of experience navigating the M&A world since selling my first business in 2011.

As a first-time business owner, that first sale was a defining moment professionally and personally. It was an emotional rollercoaster riddled with doubt and conflicting feelings. On one hand, there was immense pride in having built something from the ground up and seeing it become successful enough to attract buyers. On the other hand, the thought of letting it go was unsettling and included a surprising and profound sense of loss. The business had been “my baby” - I nurtured it, sacrificed for it (floated payroll myself in the early days) and poured everything into if for almost a decade.

Doubts inevitably crept in – was I making the right call? Would I regret this decision? How would the sale impact our clients, many of whom had become mentors or friends?

There was unexpected fear and guilt about the effect on employees who had been there since day one, some even becoming like family. Our team's incredible contributions made that success possible. The company’s success could not have been achieved without the incredible contribution of our team, some who had endured intense sprints and overcoming seemingly insurmountable challenges. Some had endured intense sprints and overcame seemingly insurmountable challenges. There was an unexpected amount of fear and guilt about the impact our team, some who had been with us since the company’s founding, had endured intense sprints, achieved incredible success in the face insurmountable challenges and limited resources. As godfather to two of my teammate’s children, what can I do to honor their contribution and ensure they are treated well after the sale?

Selling also brought uncertainty about my own identity and purpose after closing this defining chapter. If I was no longer this company's leader, who was I? What would fill my days with the same sense of drive and dedication?

As emotional as it was, I had to embrace the change and navigate that roller coaster of uncertainty and complex emotions. Here are some tips for preparing emotionally:

• Focus on “why am I selling the business now?” Be clear about why you want to sell - retirement, burnout, new opportunities, etc. In other words, what is that anchor goal you aim to achieve? Is the goal to generate wealth for your family? Pursue another endeavor? Secure the company's future with new leadership? This clarity will inform the entire sale process.

• Clarify your Vision. What comes after the sale? Whether it's retirement, starting a new venture, or pursuing other interests, can provide a sense of purpose and direction to channel energy into.

• Keep Quiet. Don't disclose any intention to sell prematurely as it will hurt employee morale, invite opportunistic competitors to poach, and signal distress to prospective buyers.

• Support. With discernment, lean on you support system and solicit input from those who know you well, have your best interests in mind and have a vested interest in your success. For example; your spouse, a mentor, friends, family, business coach, peers, advisors, or even a therapist to discuss the complex emotions around the sale and maintain objectivity.

• Therapy. I was raised in the “walk it off” generation and therapy was not common. Fast forward to today and I’m an advocate for therapy. Everyone is different and outcomes vary but working with a therapist or does provide tools to process complex emotions and reframe perspective.

• Keep Your Eye on the Ball. Continue running the business as normal. A decline in performance will challenge the purchase price.

• Celebrate. While letting go is difficult, allow yourself to feel proud about successfully building and selling the business. Allow yourself to time to reflect and to celebrate what you’ve built and what you’ve contributed to your team and your community.

• The Best Defense is a Good Offense. Hire reputable third-parties to objectively value the business, manage due diligence, maintain objectivity, maximize value, and ensure a smooth deal process.

While immensely challenging, selling a business you've built can be navigated by being prepared emotionally and surrounding yourself with the right guidance. Having walked this path ourselves, we aim to be the trusted advisors for fellow entrepreneurs facing this significant personal and professional milestone.

We are investors and business owners, family offices, board members, and M&A experts, with an intimate understanding of what it takes to build a business and to exit successfully. Recognizing the absence of advisors who could effectively navigate the personal and professional dynamics of such a sale, PMC was established to offer fellow business owners a trusted advisor that navigate complex turnarounds and transactions and co-create a more prosperous future. Contact us if we can help.

In the meantime, following are additional posts included in this series:

• Considering Selling Your Business? Following Is A Guide And Questions To Help You Prepare

• Valuing Small Businesses

• Take a Vacation Before Selling the Business!

Do You Need a Board?

With experience serving on various boards and mentoring entrepreneurs, I firmly believe in the substantial contribution a strong board can make to your company's growth and the creation of conditions necessary for a successful exit. This post marks the beginning of a series dedicated to the establishment and management of boards for small businesses.

Board of Directors vs. Advisory Board: A Distinction

A Board of Directors is a group of shareholders entrusted with specific legal and formal responsibilities to govern a company, thereby adding value to the company for the long-term benefit of stakeholders. A proficient Board steers companies towards a sustainable future by implementing sound, ethical, legal, and financial policies while ensuring adequate resources. While management handles day-to-day operations, such as strategy, budgets, goals, and compensation, the Board holds the legal obligation to prioritize the company's and shareholders' interests above all else.

Think of an Advisory Board as a team of coaches, essential if you aspire to be a true contender. An Advisory Board consists of non-mandatory subject matter experts who enhance your performance and provide astute business advice in specific areas, such as Sales, Marketing, and Operations. Beyond offering support, these advisors bestow credibility upon your company, facilitate access and connections in new business development and fundraising endeavors. Imagine the impact of having figures like Richard Branson, Jeff Bezos, or Bill Gates associated with your board.

The Value of Boards

Building a successful company demands considerable human and financial resources, and very few can accomplish this feat in isolation. Even the most accomplished entrepreneurs require experienced, invested individuals to offer guidance and insights. When a management team is engrossed in the daily operations, losing sight of the bigger picture becomes a risk.

A Board of Directors can formally and informally assist the CEO and management team in understanding the company's operations and the most effective means of achieving long-term goals. Traditionally, a board serves five pivotal functions:

1. Nominate and, if necessary, hire the CEO and provide mentoring support.

2. Collaborate with management to define a clear strategic direction.

3. Approve the operating budget and ensure adequate capitalization.

4. Monitor performance and provide advice on critical issues such as investments, mergers and acquisitions, human resources, compensation, and regulatory compliance.

5. Uphold good governance practices, legal compliance, and ethical standards.

This post is the first installment in a series about boards. In the near future, we will publish additional articles covering topics such as board candidate selection, compensation, and management. Meanwhile, for regulatory guidance, please refer to the framework established by the SEC, reach out to us for assistance, or seek legal and financial counsel.

For further insights, contact us, or seek legal and financial advice and consider the following resources;

• The Director's Manual: A Framework for Board Governance by Peter Browning & William Sparks 

• Startup Boards: Getting the Most Out of Your Board of Directors, by Brad Feld and Mahendra Ramsinghani

• National Association of Corporate Directors

• Board Management Software; Diligent; Directors Point; BoardPaq

Considering Selling Your Business? Following Is A Guide And Questions To Help You Prepare

Your business has provided for your family, your employees, your customers and your suppliers. And now you may be ready to move on. You may be thinking about selling your business now or in the future.

Timing and speed are important not only because of economic conditions, but also in terms of your business and your estate. Maybe you’re seeking an exit right away. Maybe you’re planning to stay involved in the company. If you have questions about how to proceed, you’re not alone. Many owners share your hesitation about how to prepare for a sale and that’s why we’ve produced this guide.

Selling a business can be a difficult process, and along the way, there are plenty of questions. This guide has been developed to help you quickly assess your personal and your company’s preparedness for the sale, and help you navigate the sale process.

Step 1. Assess Your Personal Readiness. Selling your company is personal. You have no doubt sacrificed time with your family, time with friends and spent frequent late nights and weekends to build your business. For some, their business becomes part of their identify – at least that was the case for me.  Above all else, you need to be personally committed to selling your company to do so successfully.  It will be to your benefit to spend time thinking about your needs and if you are ready to sell.  Following are a few questions to help;

• What type of buyer are you looking for? (e.g. acquirer, growth capital, minority investor)

• What is important to you when selecting a buyer or an investor?

• What would your ideal transition look like? Do you want to; (a) Exit immediately (b) Remain involved 3-12 months post-sale? (c) Remain involved full-time and in charge after the sale? (d) Remain involved full-time as a consultant or employee? (e) Remain involved part-time consultant or board member?

• Besides yourself, who else should weigh in on the decision to sell?

• When would you like to sell the Company? (a) today (b) within a month (c) within a year (d) unsure

Step 2. Assess Your Business's Readiness.  Every business has weaknesses, and buyers will be quick to find them.  Hiding weaknesses will make any buyer uneasy and expect that weaknesses will be discovered. Be proactive. Identify all weaknesses and, if you can, mitigate critical weaknesses before you begin the selling process. Dealing with these weakness or providing a plan for overcoming them will give buyers more confidence. Following are a few questions to help you identify potential weaknesses in your business;

• Over the past three years; have revenues and profits consistently increased?

• Over the past three years; have costs and expenses increased at the same or at a lower rate than revenue?

• Over the past three years, have assets exceeded liabilities?

• Do you foresee market, geographic or demographic changes that threaten the long-term viability of your business?

• Where do you see the Company going? Is your business in a market or geography where the number of customers is increasing?

• Are your products or services distinct and superior to your competitors?

• Does your business enjoy advantages over the competition (e.g. patents, proprietary processes / methods, trademarks, copyrights, etc.)?

• Can you prove that your business is well known and respected? Does your business have favorable online reviews?

• Have your major customers been with you for the long-term or signed long-term contracts?

• Have your major customer accounts been growing year over year?

• Do your customers know and trust your staff? Do your customers rely on your products or services and your team more than on your expertise or relationship?

• Are your processes and policies documented and repeatable? 

• Does your business have modern facilities and equipment? Are all leases (property and equipment) transferable?

Step 3. Decide When to Sell. Every sale is different, and it’s hard to know exactly how long your business will take to sell. According to BizBuySell, 54% of businesses sold in six (6) to eleven (11) months, starting from the time those businesses started looking for a buyer. While six (6) to eleven (11) months is a good estimate, your business’s industry, location, financial performance, and the current economic conditions will all have an impact.

Step 4. Prepare for the Sale

1. Pay off Debt. Keeping debt may turn away a lot of buyers and will typically lower your company’s valuation. The more debt you pay off the better your financials will look to buyers. It might make cash tight until you sell, but this is actually beneficial since it’ll force you to tighten the budget, increase your working capital, which will increase the business’s valuation. Its worth noting that most buyers will ask that you pay off debt with proceeds from the sale, so you might as well take care of it immediately.

2. Organize Company Materials. Buyers want to see that you’re prepared for the sale. Following are the common materials documents buyers will require. Preparing these materials ahead of time will make your interactions with buyers productive and efficient. 

   • Income Statement which shows your business’s revenues, costs of goods sold (COGS), operating expenses, operating and net profits

   • Balance Sheet which presents your business’ assets (equipment, accounts receivable, goodwill) and liabilities (loans, debts, liens, accounts payable)

   • Cash Flow Statement which breaks down all of the money that comes in and goes out of the business or working cash flow. The Cash Flow Statement will answer a lot of potential questions from buyers  and shows how much working capital the business has to work with each month

   • Tax Returns For the last three (3) years. Buyers want to confirm that you have filed and paid taxes for the business. Also, they will look at revenue, net income, and tax payment numbers to confirm that the financial details are correct.

   • Investor Presentation or Confidential Information Memorandum (CIM) which is a summary presentation that should include a summary of the business, overview of management, operating model, market and competitive environment, product or service details, customer and sales summary, operating and financial detail, summary of any patents & intellectual property

Step 6. Organize Legal Documents. At a minimum, you’ll need to start with an Non-Disclosure Agreement (NDA) for potential buyers and a purchase agreement to close the transaction. Different industries, sellers and buyers require different agreements. Some contracts you may need include:

• Non-Disclosure Agreement (NDA);

• Letter of Intent (LOI);

• Purchase and Sale Agreement (PSA);

• Seller Financing Agreement;

• Assignment of Leases;

• Assignment of Licenses;

• Succession Agreements for Employee Benefit Plans;

• Transfer of Patents, Trademarks, Copyrights, etc.;

• Seller Consulting Agreement;

• Asset Acquisition Statement;

• Transfer of Contracts

Step 7. Prepare for Due Diligence. When you enter due diligence, you’ll be asked provide buyers additional information. Regardless, ONLY share information once you have executed a mutual Non-Disclosure Agreement (NDA) with the buyer.

1. Data Room or an online (e.g. Dropbox) location to securely store and share your business’s information with potential buyers. This helps you keep your data organized and gives potential buyers the ability to look at it within minutes. All you have to do is grant them access

2. Additional Materials. The information requested during due diligence will vary by buyer, industry, and the concerns of each individual business. Following is a list of the common materials you’ll be asked to provide;

   • Proof of Business Ownership;

   • Business Licenses and Permits;

   • Payroll Summaries for 1 Year;

   • Outstanding accounts payable, accounts receivable and aging;

   • Current Loan Documentation;

   • Lease Contracts;

   • Sales Contracts;

   • Details of All Chargebacks or “Owner’s Salary” in Your Financials;

   • Three (3) Years of Profit and Loss Statements;

   • Three (3) Years of Cash Flow Statements;

   • Three (3) Years of Balance Sheets

You may not have all of these documents available during the sale process. If that’s the case, be prepared to give a reason why to any potential buyers.

Step 8. Prepare to Close. Work with your attorney and accountant to organize the steps and coordinate closing. Once each step is taken, review the closing-day materials with the buyer to ensure advance agreement for a smooth closing. Following are a list of common tasks to consider;

• Prepare corporate documents. If your business is a corporation, work with your attorney to pass a corporate resolution authorizing the sale

• Prepare government and tax forms such as;

  • Forms required by the Secretary of State or Corporations Commission;

  • Transfer documents for vehicles included in the sale;

  • Transfer documents for intellectual property;

  • IRS Form 8594, which you and the buyer need to complete

• Confirm insurance requirements as per the purchase and sale agreement;

• Prepare furniture and equipment sale list, and note, if any, are under lease;

• Prepare a list of assets excluded from the sale;

• Prepare to transfer contracts and agreements;

• Assemble titles and leases and obtain approvals to transfer assets and obligations;

• List and prepare to transfer work in process

• Finalize accounts receivable and accounts payable, including aging reports;

• Prepare loan documents including:

  • promissory notes;

  • security agreements including buyer’s personal guarantee;

  • personal guarantees from buyer’s spouse and third-party guarantor;

  • UCC financing statement to be filed with your state

• Assemble copies of leases and prepare assignment-acceptance documents;

• Prepare personal agreements including consulting or management agreements;

• Prepare exceptions to warranties and representations, if any;

• Prepare succession agreements for employee benefit plans including profit sharing, flexible spending or others;

• Prepare the bill of sale;

• Other, based on input from your lawyers or accountants 

Step 8. Prepare Purchase and Sale Agreement

1. Obtain a purchase and sale agreement from your lawyer and – in all cases – have your attorney review the agreement before signing;

2. Agree to the closing or settlement sheet which lists all financial aspects of the sale including how expenses and credits are assigned;

3. Agree to post-closing final adjustments to purchase price to account for prorated expenses and closing valuation of inventory and accounts receivable - usually within 15 days of close;

4. Finalize the purchase price to reflect the agreements made during negotiations; prorated rent, utility and other fees; final inventory value; final accounts receivable and accounts payable value;

5. Prepare the closing or settlement sheet, which lists the purchase price and all costs and price adjustments to be paid by or credited to the seller and buyer. Your attorney will prepare this sheet unless your sale is closing through an escrow agent, in which case it will be prepared by the escrow office

Step 9. Schedule the Close.

1. Schedule the closing when all parties are available and preferably during a morning hours when banks and government offices are open;

2. Close the last day of the quarter, month or pay period to simplify proration of expenses;

3. Here’s who may attend:

   • You and any owners of your business;

   • Spouse and spouses of other owners and buyers;

   • Third-party loan guarantors (if any)

   • Your and your buyer’s attorney;

   • Your escrow agent, if any;

   • Others whose signatures will be required.

Step 10. Close the Deal. On closing day, here’s what to expect. You’ll likely take the following steps:

1. Sign the purchase and sale agreement;

2. Sign loan documents;

3. Sign forms to transfer patents, trademarks, copyrights and other intellectual property assets;

4. Sign lease-transfer, vehicle ownership-transfer, franchise, and other asset transfers; 

5. Sign succession, seller consulting, employment, and/or non-competition agreements

6. Sign the bill of sale;

7. Sign articles of amendment to change the name of the business. This allows the buyer to amend the working name used during the purchase process to the name purchased;

8. Agree to the Asset Acquisition Statement, IRS Form 8594, which you and the buyer must attach, showing the identical allocation, to your federal income tax return.

Step 11. Get Paid. Receive the buyer’s payment for the purchase price in full or for a sizable down payment, depending on the payment terms you negotiated.

• If your sale will close in an escrow office will:

  • Provide instructions provided once the escrow account was established;

  • Confirm that all obligations and contingencies have been satisfied;

  • You and the buyer will sign closing documents;

  • The escrow agent will transfer funds and record the sale

• If your sale will close in an attorney’s office:

  • Your attorney’s review the purchase and sale agreement

  • All parties address outstanding obligations or contingencies

  • All parties meet to sign documents and transfer funds

And, with that, your deal is done!  But your involvement isn’t over. You still have to announce the sale and take care of long lists of details and legal items to formally transfer your business and help the transition to the new owner.

DISCLAIMER. This information is provided for use by Phoenix Management Consulting, Inc. clients and prospects. This information do not constitute legal advice or opinions of any kind. Your use of this information is at your own risk, and you should first seek legal advice.  No lawyer-client, advisory, fiduciary or other relationship exists between Phoenix Management Consulting, Inc. and any person accessing or otherwise using our sample documents. Phoenix Management Consulting, Inc. and its affiliates (and any of their respective directors, officers, agents, contractors, interns, suppliers and employees) will not be liable for any damages, losses or causes of action of any nature arising from any use of any of the content or the provision of said documents.

© Phoenix Management Consulting, Inc. | Commercial use of this document without express written consent of Phoenix Management Consulting, Inc. is prohibited.

NFL Coach Bruce Arians On Merit Based Leadership

Bruce Arians has a compelling style as a NFL coach and as a leader. He has a unique ability to understand his team and staff. He demonstrated the ability to develop a merit based organization and promote his staff based upon their capabilities. Full disclosure, I'm slightly biased as a fellow #virginiatech alum and as someone who grew up with an appreciation for diversity. For more, watch his Real Sports segment https://www.hbo.com/real-sports-with-bryant-gumbel/all-episodes/july-2019