Cashing Out in Turbulent Times: Four Lessons Learned to Avoid a Missed Opportunity

To quote a famous aphorism “politics ain’t bean bag” and neither are transactions in this current economic environment. Getting deals done in this climate requires patience, skill and a clear sense of value. There is no room for complications in this already delicate dance of emotion, personal loyalties, company politics and other non-contributors to the bottom line. What follows are some key takeaways as you negotiate your exit.

1. Sweat the Small Stuff. So, the buyer does not value a product line, customer, employee, etc. the same as you would… SO WHAT, you are selling the business. You are not selling to your clone, you are selling to someone else who may see value, strategy and the future trajectory of the business very differently. If such thought processes do not seriously affect or undervalue your purchase price, let it go. You are selling the company: it is no longer your concern to dictate strategy or operation.

(Point: Don’t get so caught up in your legacy that you drive away potential buyers.)

2. Retaining Key Executives Run Amok. The fact that good people are the basis of every successful business is universally known. The temptation to reward those people during transactions, whether they stay on or not, is usually high on the priority list. But on whose priority list is the operative question. Yes, your employee has been working for you for 20 years and the buyer only wants him or her to stay on for a transitional period. It is absolutely in your purview to negotiate a package for your employee but only to a point. Generous labor union style buyouts and benefits packages are things of the past. Threats to walk away from the deal unless your people are taken care of in the manner in which you believe they should be taken care of will sabotage your leverage on matters of greater importance.

(Point: If rewarding key employees is critical to the transaction, pay them outside of the transaction with a portion of your proceeds.)

3. Notice to Customers, Vendors and Other Third Parties. Your transaction will become known to the public eventually. Do not risk upsetting key customers, vendors and others by lack of notice. Advance notice and reassurance goes a long way toward preserving the relationships that form the basis of your sales price and potentially your earnout.

(Point: Have a public relations plan that you and the buyer can execute as the transaction date approaches.)

4. Planes, Trains & Automobiles. Clean up the books of personal perks like cars for family members who are minimally or not employed at all by the business, executive life insurance policies, etc. Squabbles over car leases and cash surrender value of life insurance have derailed many a deal. Have a plan to deal with these items in advance of any offering for sale.

(Point: If such non-business related assets are on the books at the time of the transaction, even though they mean nothing to the buyer, the buyer may still expect you to pay a fair value for them.)

Conclusion

As with any business transaction, it is critical to be aware of and honest about your bargaining power. The attorneys at Boodell & Domanskis, LLC can help you assess your business to maximize your realization in any exit transaction.


Pamela Mitchell Belyn

by Pamela M. Belyn, Esq.

Learn more about the firm’s Business & Entrepreneurial Law practice.