Many business owners believe the act of selling their business is similar to passing the baton in a 400 meter relay: once you’re finished running, you get to relax. In reality, many buyers will insist that you stay on for a transition period – anywhere from six months to five years – during which time you continue to work in your business to help the buyer capitalize on the investment they’re making.
THE Question
At some point in the process of selling your business, a prospective buyer will ask you – oftentimes casually – “Why do you want to sell your business?” These eight seemingly innocuous words have derailed more deals than any others.
Buyers ask THE question to evaluate how likely and willing you are to stay on, or if you already have one foot out the door.
Obviously you don’t want to lie, but there is a right and wrong way to answer THE question. Answers like “I want to slow down a bit” or “I want to travel” or “we’ve got a baby on the way and I want to spend more time at home” communicate to a potential buyer that you plan on winding down when they take over. However, what they want to hear is your intention to help them realize the potential locked inside your business.
Here are some suggested responses to THE question based on your age.
Under 40
If you’re under 40, you clearly aren’t ready to “retire” so you need to communicate that you see an upside in merging your business with the buyer’s organization:
In order for us to get to the next level, we need to find a partner with more <insert sales people, distribution, geographic reach, capital or whatever the partner brings to the table>.
40 to 55
If you’re between 40 and 55 years old, most people will understand the need to shore up your personal balance sheet:
I’ve reached a time in my life where I want to create some liquidity from the value I’ve created so far, and at the same time I want to find a partner who can help us take the business to the next level.
Over 55
If you’re over 55, you can start to talk about retirement, but you want to make sure you communicate that you still have lots of energy and passion for your business.
I’m at a stage where I need to start thinking about retirement. It’s a long way off yet, but I want to be proactive.
Rehearse your answer to THE question so it becomes a natural response when a potential buyer inevitably asks it.
Many thanks to John Warrillow, developer of the Sellability Score, for his contributions to this post.
This talks to both buyers and sellers making up stories. Sellers will want to let the buyer know all of the wonderful things that will happen to the business when they get the buyers help. Buyers will tell sellers that they really need their help for the transaction to be successful.
Both are lies and sophisticated people to a transaction know this. If you really want to move on, you should just tell the buyer you want to move on. At the same time you should have used a stay bonus to make sure your key people stay in place and this should be used as a selling point for why the buyer should buy your business.
When I sold my first business I was out of the business two hours after closing and never went back. My managers all had stay bonuses and they stayed between six months and a year. The buyer got what they wanted which was continuity and the mangers had a chance to prove themselves to the new owner.
I got a better price because of being honest with the buyers and the buyers understood why they were getting a good deal.