I was having lunch the other day with an M&A Lawyer and and M&A advisor who sells businesses with EBITDA greater than $5 million. We were comparing notes about why business owners, especially the successful owners, are so reluctant to talk about exiting their business one day.
“Trying to get them to talk about preparing for their exit is like challenging them to a duel at dawn! They get feisty and resistant even though all we’re doing is pointing out the financial rewards that could be in their future if they prepared for a smart exit. But they don’t want to know about that.” The M&A Advisor talks to business owners every day. He’d had too many of these fruitless conversations lately.
The M&A Lawyer jumped in “Yeah, they are cowboys and we’re always the enemy. They want to do things their way whether it messes things up or not. But, hey, it’s just in the entrepreneur’s nature to want to control how everything works. Nothing we can do about that.”
Well, I had lay down the gauntlet. “Maybe we advisors just haven’t brought up the topic in a way that business owner’s can latch on to. ‘Exit = End of Useful Life’ in their minds. I don’t want to talk about that either, do you?”
We all laughed. Then I turned the tables. I brought up the thorny topic that makes advisors squirm, resist and avoid at all costs.
You see, advisors love to talk about the transaction mechanics, the numbers, the deal structure, comparables, multiples, leverage, strategic fit, tax, capital gains, estate planning, deal making, normalizing, assets vs share sales, due diligence, v-rooms, closing dinner locations, and well, owner personality types.
These topics keep the conversation flowing, faces animated and war stories traded.
I switched gears. And watched their faces go blank and their shoulders tighten.
“The reason they don’t want to talk about exits is all psychological and emotional. And until advisors can get comfortable talking about these feelings and fears, you’ll get the brush off.”
“Thinking about an exit brings up a trainload of catch 22s like ‘who will I be if I exit?’, ‘I was hoping my daughter would take an interest so I’m waiting for that day’ and ‘I’m not ready to retire.’
Then there are all the unacknowledged fears such as ‘If I give up control, my business will fail.’ and ‘I won’t give up control because maybe the next guy will run things better than I did and what will that say about me?’ or ‘I like what I do and I’d be lost if I didn’t do this everyday.’
Then there is the happy business owner. ‘I like the way things are now. I have a nice income, great employees, a team that runs things. Why rock the boat?’
“If they don’t deal with these concerns first, then the whole exit preparation question never gets dealt with. To get to the exit transaction, we have to deal with the human issues. A business isn’t just a deal, it’s a person’s identity and their lifework.”
“Yeah. But I don’t have the skills to get into that conversation. That’s your skill set, not ours.” The lawyer crossed his arms.
“Possibly. But that doesn’t absolve you of responsibility to help business owners recognize that they won’t be able to sell if they don’t get going on preparing their company to become saleable. They need to be ready for the day their ideal buyer is looking for a business in their industry. It’s like knowing the secret for how to get off a sinking ship and not telling anyone.
OK, now I was really making them squirm.
‘Hey, I think advisors have a duty to their clients to let them know that getting a return on their investment in their business is not inevitable. Not with the current statistics that 90% of business owners failing to exit. What will they do with a business they can’t sell? There is no off switch. A GM could run it for the owner, but that requires making changes too. No exit, no big payday.’
Then I cut them some slack and gave them a tool so they could share the secret.
Jack Beauregard, the author of “Finding Your New Owner:: For Your Business, For Your Life, A Guide to a New Paradigm for Baby Boomer Business Owners“knows these ‘owner exit resistance’ issues well. He and his partner Paul Cronin founded Successful Transition Planning Institute to help business owners face the personal, emotional and identity issues that cause paralysis at a crucial time in an owner’s life.
Their book teaches a business owner how to look into the dark corners of their world to hunt for that new identity and create a life to look forward to post-exit. What’s so vital about this book is that doing this transition planning work is the lynch pin that allows business owners to access the wealth inside their company.
When an owner learns to separate their identity from their business, they are able to let go of control to make the changes inside their business that will make the company saleable. A saleable company is like owning a winning lottery ticket.
What I like about Jack’s book is that he makes this psychological and emotionally difficult journey strategic, logical and step by step. Everything makes sense. Since Jack trains practitioners and business owners in his Transition Thinking process he understands that people love to avoid the messiness and confusion of naval gazing and get to the point quickly and painlessly.
It’s obvious he’s worked with many owners over the years as he tells their stories in plain language – their problem, the solution they invented for themselves and the benefits of the change.
So, advisors of all stripes, use Jack’s book to help you have that messy emotional conversation. Leave it as a calling card. They will remember that you are being helpful.
You didn’t say ‘let’s talk exit’ you said ‘read this’.