The Sport of the Business Sale

For the book, "The Business Exit Rollercoaster," Brandon Jacob and I interviewed nearly 100 business owners who sold their companies and a scattering of mergers & acquisitions (M&A) advisors, investment bankers, and buyers. As the interviews progressed, two sports analogies jumped out.

The first is a golf analogy. Imagine an amateur golfer and a professional who look very similar at the driving range. Their short, middle, and long games are the same. Accordingly, the amateur thinks he will hold his own in a match with the pro. He won’t.

The pro has played the course dozens to hundreds of times. The amateur has not only never played the course, he’s never played any course. That’s bad enough, but the amateur compounds his problems by trying to save money on a caddy. Without the guidance of the caddy, the amateur will make mistakes. He will choose a bad approach, select the wrong club, or any number of errors a caddy could have prevented.

The amateur does not even know he’s making mistakes. He just knows that every bad lie, every slice, every hook, every mistake is a new experience. He gets frustrated. He gets angry. He gets emotional. If he had a caddy, the caddy could calm him down and help get his head right.

A broker, M&A advisor, or investment banker play the role of a caddy for the amateur business salesperson who is selling his business for the first time. They prevent mistakes and unforced errors. They help keep the emotions in check. They improve the business owner’s performance in the transactions, giving him a better score (i.e., more money) at the end of the day.

A second analogy involves football. The process of selling a company can be similar to a football game. There’s a pre-game that occurs before anyone takes the field. This is the run-up to selling a business. Some take a planned approach like the starter in a game, who studies film to prepare and thinks through how he will respond in certain situations. These are the business owners who are proactive about selling their companies.

Others are like the fourth-string player who never thinks he will see the field, only to get thrust into the game unexpectedly. He’s not mentally prepared. He’s confused and ends up playing on instinct and reaction. These are the business owners who suddenly find themselves in the market due to health issues or the death of a partner or spouse. There is always some form of catalyst, which results in the business owner starting the game.

The first half of the game is about finding a buyer, negotiating an acceptable price, and getting a signed letter of intent (LOI). This is the point where many think the game is over, but it’s only halftime. It feels good to get the LOI. The owner can imagine the money and the things he will do with it, but the second half awaits, and it will be grueling.

Once the LOI is signed, due diligence begins. Getting through due diligence while continuing to operate a business at a high level is a grind. But eventually, it ends, and the close arrives. After the build-up, the close seems anticlimactic. Well, it is. And while funding is fairly routine, it is life-changing to see that many digits in a personal bank account.

Some walk away clean at the close, and their game ends. Others stay on for a few weeks up to a few years. The game is still going on, but the difference is that the owner is no longer calling the plays. Eventually, he walks away, ending the game and starting the post-game.

Surprisingly, the post-game turned out to be the most challenging part for the majority of business owners interviewed. A good part of themselves and their lives were wrapped up in and synonymous with the business. Many suffer a loss of identity, if not outright depression. They seek purpose and meaning. The post-game isn’t over until the new purpose is found and the owner can mentally and emotionally move on with his life.

Those who recognize all aspects of the game, prepare emotionally, and enlist some type of representative to aid in the sale of their businesses, emerged the healthiest from both a financial and mental health standpoint.