Are you planning to step away from running your business in the next few years? Here are eight mistakes to avoid before hitting the eject button:
Mistake 1: Being boring
While it is true buyers like predictability, they also like growth. Set aside a small slice of money for experimenting on new things (product ideas, etc.). The BBC, for example, has a "gambling fund," which it uses to fund experimental programs that fail the typical new program development testing cycle. It was through the gambling fund that the blockbuster t.v. show "The Office" received funding.
Mistake 2: Selling your product, not your business
A buyer will need to see that your company has a way of winning customers without you. Hire salespeople or invest in marketing so that your business is less reliant on you as a rainmaker. Start thinking of your business as your most important "product" and invest your sales energy in meeting with people who might buy your business, not your product.
Mistake 3: Staying married
Eighty-four-year-old Hugh Hefner told The New York Times last year, "If I sold it (Playboy Enterprises), my life would be over." If you're too emotionally connected to your business, it will be difficult to get the price you deserve and will leave you feeling as though you've lost a family member after the sale. Instead, slowly start cultivating interests (e.g., travel, another business idea, charity, etc.) outside of work to ease the transition.
Mistake 4: Using retirement income as the basis of your number
Succession planners will tell you to figure out how much income you want in retirement and make that the basis for calculating how much money you need to get from selling your business. The reality is, your business is worth what someone will pay for it and has nothing to do with how much you need to retire. You'll likely be bored after selling your company, so after taking some time to decompress, travel and play, you'll probably find yourself starting something new anyway.
Mistake 5: Not including survivor clauses in your contracts
Acquirers like to see that you have locked customers into long-term agreements, but if your customer contracts do not have a "survivor clause" to ensure they remain enforceable after a change in ownership of your company, they may be moot. Talk to a lawyer to make sure an acquirer will get the benefit of the contracts you've got with customers after you're gone.
Mistake 6: Sharing equity with key employees
It's tempting to use equity or options to retain employees you want to keep through the negotiation and sale of your company. However, you can achieve the same result with a simple "stay bonus," which you offer key employees who remain with your company for a period of time after the sale. A stay bonus is a lot simpler to implement, doesn't muddy your company's capital structure and may end up costing you less in the long run.
Mistake 7: Leaving your team rudderless
A lot of big-personality founders set the tone for their business through their personal charisma, but if you want to sell your business, you need to make sure your company has a set of values independent of you. David Ogilvy handed out Russian dolls to his managers as a reminder of the perils of hiring successive layers of smaller and smaller people. Ogilvy sold his shares in his agency and retired to a castle in France, where he ultimately passed away, but the dolls live on in the hallways of Ogilvy offices as a reminder to managers to always hire people smarter than they are. Find a way to remind employees of your values when you're not around.
Mistake 8: Not having a BATNA
Professional negotiators suggest having a best alternative to a negotiated agreement (BATNA) -- that is, a plan B in case negotiations to sell your business stall. For example, if you're planning to sell your business to a strategic buyer, also have a financial buyer keen to make an offer or a management team with the means to buy your business over time. That way, you'll have more leverage when negotiations get dicey.
Have you ever sold a business? If so, what you would you do differently next time?
(photo courtesy of Flickr/Alex E. Proimos)
More from Built To Sell:
- Is Your Business Battle Ready?
- 9 Ways to Make Your Company More Valuable in 2011
- How Writing a Business Book Can Help Your Business
- Why You Need To Sell Less Stuff To More People
Follow him on Twitter @JohnWarrillow Become a fan on Facebook