For all of you old enough to remember, and anyone into old TV reruns, those were the wise words from Mike Brady to Greg Brady when he had his heart set on buying a car.
The car checked all the boxes for Greg.
Looked cool! (Chicks dig it! I believe is what he said.)
The ultimate winning purchase!
One problem though…it was not in good shape and didn’t run well. Greg overlooked all that because he HAD to have the car. In steps the wise sage Mike Brady to explain the idea of Caveat Emptor, let the buyer beware. In this case the seller had an advantage over the buyer because the buyer let his emotions get ahead of rationality.
I am here to say, when it comes to selling a company, Caveat Venditor, let the SELLER (that’s you) beware!
In the incredibly over-heated world of business transactions in the last couple decades, the buyers have become incredibly savvy. They have a formula that works, and have been using that formula to create outlier returns for investors, which is great…for the investor. But not always so great for the entrepreneur that is selling the company to those buyers.
Just like how Greg got emotionally attached to the IDEA of the car, he didn’t do his homework to make sure it was a good purchase. That it was reliable. That it wasn’t going to be a fortune to maintain. As a seller of a company you have to fight the same emotional urges, and good buyers know that. They are masterful at helping you imagine a great future before it even happens. And then, at some point in the negotiation, when they sense the leverage has shifted because you are so invested in the outcome, they can start to erode your offer.
Maybe the terms are a little less favorable, or your employment agreement changes, or worse yet they drop the price. It is happening every single day in the world of buying and selling companies.
So just a word to the wise, and a couple ideas as you go through the process.
- Never, ever lose track of exactly where the leverage lies at any point in time of a deal. Always know where you stand and never give that away by getting emotionally committed to the outcome.
- Run the business like you are not selling it. One of the easiest ways for buyers to make changes is you taking your eye off the ball. When in market and going through the process just don’t miss. Make sure you stay ahead of your projections and the business is the “best it has ever been”.
- And finally, and definitely most importantly, don’t even think about the outcomes before the wire is received. Don’t start to paint a picture in your head of how you will spend the money, what toys you might buy, what beach house you might get. The problem is, as soon as you do this, subconsciously you are at a disadvantage… and buyers can smell it. Like blood in the water… and you put yourself at a disadvantage. Whether buyers are actively looking, or even if it happens passively, you are still at a disadvantage!
Selling a company is a long, hard road. With incredible ups and downs, highs and lows, and many times along the way you will be certain it will get done one minute, then certain it won’t get done the next.
Make sure going in your steeling yourself against the emotional swings and be ready for anything… including walking away at any point in the process, up to and including at the closing table itself.
The best deal you will ever do is the one you don’t do because it isn’t the right one!
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