I was fortunate enough to attend a mergers and acquisitions (M&A) seminar this week with a client who is considering selling his business. The speaker described two different processes for selling a business: the way that most people do it, or the common process, and the professional process. I think the professional process he described can be applied to many other areas of life than just selling a business.
The seminar was put on for business owners by a company whose ultimate intention was to get the business owners to use them to sell their companies, but the speaker actually had an amazing presentation with a ton of great information and wasn’t salesy. I don’t have an expertise in M&A or selling a business (I don’t have any knowledge in this area yet, really), so the whole day was a great, eye-opening learning experience for me.
The speaker was an extremely smart and successful businessman with a PhD in business who not only practices what he preaches, but also is a part-time professor. One of the first things that he told the group was that he teaches a semester-long M&A MBA class and we’d get the class in 8 hours…
He wasn’t lying.
I’ll spare all of the minute details of his presentation, but the basis of it was that most people who sell a business do it the wrong way. Here’s how he described the most common process used by business owners to sell their businesses:
| 1 | Make a decision to sell – A life event probably triggered this |
| 2 | Come up with a listing price |
| 3 | Find a buyer |
| 4 | Gather documentation to support your price |
| 5 | Negotiate with the buyer – Price, terms, payments, etc. |
| 6 | Get paid |
Next, he described what he called “the professional process to exit a business”:
| 1 | Evaluation – Determine the enterprise value of your business (the value of the company on an ongoing basis once the buyer has control) |
| 2 | Decide – Is it the right time to go to market? |
| 3 | Documentation – Gather all documentation and financials regarding the business |
| 4 | Buyer Pool – Create a pool of predefined & prequalified buyers who may buy the business |
| 5 | Limited Auction – Engage multiple buyers in an auction process over a limited period of time to hopefully increase your selling price |
| 6 | Decide – If it’s the right time to sell based on the offers |
| 7 | Get paid |
Comparison
As you can see, the professional process is pretty much backwards compared to the common process. In the common process you’re setting a listing price for the world to see and telling any potential suitors that that’s the maximum amount you’d like to get paid for the business. You’re begging for them to negotiate that number down. In the professional process you’re creating an auction process to drive your selling price up.
In the common process you’re making a decision to sell because something has happened, and you may need the money or may be in a time crunch. In the professional process, you’re preparing the business to be sold when the time and offers are right.
In the common process you’re setting your selling price based on what you’ve done with the business in the past. In the professional process, you’re valuing the business based on what the buyer will be able to do with it in the future.
I think the comparison of the common process and professional process of selling a business holds true with so many things in life, especially personal finances.
Personal Finance Professional Process
The professional process of personal finances is to gather all of your financial information, organize it, determine your goals and what you want your money to do for you, and figure out what action steps you need to take to get there. Unfortunately, the common process is to ignore your financial life and hope that things end up working out in the end. Maybe once it’s time to retire you think about looking for help, but most people don’t. Most of those who do wait until it’s time to retire (a life event that has triggered this) to seek help are unprepared and not going to be able to do exactly what they want.
Taking control of your financial life at an early age through a professional process is going to be much more beneficial to you in the long run. Just like the professional process of selling a business can end up with putting more money in your pocket once the business is sold, having a professional personal finance process can help you to build greater wealth in the long-run and be more likely to reach your goals.
