Some of the work spent building a business will not be recovered in the sales price while other work does add to the sales value. I’ll illustrate this with an analogy. When you go out to dinner would you pay more for the same meal because the chef dropped many of his past meals on the floor, or burned some of his past meals, or had to wash the dishes every night by himself because he couldn’t afford to hire a dish washer? Of course not. You want a good meal at a fair price. It is not your concern how many hard lessons the restaurant owner suffered while growing his business. The restaurant’s reward is you being there, paying fair market value for what is on the menu that day. The restaurant owner should probably try a different business if that is not good enough. On the other hand some work does add value to the company. If the restaurant owner knows where to get the best beef, cultivates a stellar reputation with reviewers on Yelp (online reviews) and makes sure to give every unhappy customer a gift certificate and a sincere apology, then that meal will probably command a couple of dollars more than the burger joint down the street. See the difference?
Be happy with a good deal
Some business owners turn down a good deal, then sell their business later on for much less. You have confidence and enthusiasm or you would not be an entrepreneur. However we all have to be honest with ourselves. You wouldn’t be selling unless you had a good reason, right? Ask yourself — what are the odds that those same good reasons might still exist in a couple of years. If the odds are good, don’t give the company away, but do take a good deal when it comes.
It’s the deal after the deal that counts
Lots of things that seem simple at closing end up being difficult later. A negotiator that continually tacks on another new condition to a deal every time it seems to be finished sometimes keeps doing that ad nauseam. This can be a bad indicator for the future. Non-competes are another good example. These types of agreements can’t always anticipate emerging markets or product lines that seem insignificant at the time, but become a very big deal a few years later. Another “deal after the deal” is intellectual property ownership. Entrepreneurs are full of ideas, and they often have them put aside during a sales transaction only to bring them out and pursue them with twice the vigor after a sale. They can be perfectly justified in doing so, but it can seem to the acquirer that they were not perfectly forthright before the sale, too. These kinds of conflicts, not to mention outright fights over cash and assets, can often end up in court to finalize another deal after “the” deal. Hiring an experienced broker can help to prevent some of these issues.
Trust, but verify
“Acquihires” are interesting. Hiring a person to work for the company they once owned can range from being disastrous to being a great partnership. The key issue is usually motivation. If acquihires feel like they got stiffed, if the company outgrew their skill sets, they don’t like the new company direction or they have lost all motivation to excel, they can be a detriment to the business going forward. If they still want to be rock stars, feel that the deal was fair, and they have current skill sets, then they can keep carrying the company forward for the new owners. Before an acquihire-type transaction, have a plan agreed upon in advance to verify the performance of the acquihire, and an exit strategy can be good to define as well. The acquirer should not shell out money and walk away, taking the acquihire’s word that everything will be all right.
Do what you say, and say what you’ll do
Be sure you clearly express what you understand the deal to be and then keep it to the best of your ability. Have the character to keep a handshake deal but the sense to verify it with a solid legal document. Once again, an experienced broker can be a valuable asset.
This article is for information purposes only and does not constitute a solicitation to buy, sell or broker any business transaction. Powersports consultant Gary Gustafson is president of G-Force Consulting, which contributes market research, sales channel development and general consulting for powersports business owners. Learn more on the web at www.gforceconsulting.com.
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