The NY Times tackles a very important topic for today’s business owner: what to do when partners want to split. A buy-sell agreement protects all owners in a business for events when a minority, majority or equal owner decides or is forced to leave a business. In most cases, a buy-sell agreement will include a provision for determining “fair market value” via a credible third-party business valuation.
If you own a business and share that ownership with other partners, it is important that you create measures to protect everyone’s best interests in the form of a buy-sell agreement. Seek your attorney for such matters so that it is fair, carries goodwill and is responsible to all shareholders within your business. In the absence of a buy-sell, ownership claims and buyouts are at jeopardy in most cases leading to litigation and exorbitant legal fees with few winners in the end.
Serial entrepreneur Mike Doernberg used this saying in a business owners workshop and it has always stuck with me. In particular, he used this phrase as it relates to start-up business owners who have reached a point of no return and are about to “cross the chasm”. Either sell your business (run from the lion) at this juncture, or bear down for the next 3-5 years to really refine & develop the business (chase the naked lady).
Now, this catchy phrase should be at the top of every business owners’ mind (not just start-ups) as we enter what analysts project to be a tumultuous next couple of years. Rob Slee, investment banking guru, paints a very grim future for today’s business owner based on 10-year, US economic cycles over the past few decades:
- “Owners are currently faced with an adult decision: to either get strategic about their businesses or to get out as soon as possible.”
- “A further challenge to owners is the uncertain US economy. Actually the economy tipped to the dark side toward the end of 2007.”
- “…..private equity and hedge funds also have had too much money for their own good. These classes, which represent trillions of dollars, will be reset over the next 3-4 years, making the sub-prime thing seem like a drop in the bucket.”
- “…..business owners have until the 2nd quarter of 2008 to sell out, or they will need to hold their companies until 2015 or so before they can maximize a sale. Yikes!”
- “You still have a few months to sell-out before the nasty economic front settles in. We’re about to face capitalism at its coldest.”
No one can foretell the future, but Rob Slee uses historical trends of economic trends to validate his points. With the US still recovering from the sub-prime crisis, being locked in to a nasty war, and trying to determine who will become the next President, business owners are at more risk in possibly declining SMB valuations and opportunities to sell their business.
Our recommendation: Run from the lion and sell your business (if you’ve been debating this over the past couple of years).
For additional insight and to add to this discussion, please read our article on Baby Boomer Business Owners flooding the marketplace with “for sale” companies.
If you own a business and are thinking about selling, it is important you recognize the value of a defined plan & strategy and the value of professional advisors. An article featured on Financial Post summarizes a recent study of business owners who sold their business within the past 5 years (more than 100 business owners were surveyed about selling and what they would recommend to other business owners following their own personal experiences):
- 74% recommend a professional business valuation to determine a fair, credible asking price
- 71% recommend hiring a professional (such as a business broker) to coordinate & facilitate the entire selling process
A common sentiment amongst these business owners who decided to manage the entire process independent of outside assistance was “the process was often lonely, emotional and conducted without proper planning”. Two other key quotes & findings from this study when business owners did it themselves:
- “Business owners are waiting till they get an offer before they address key issues in selling a business, which means they’re not negotiating from strength, and are leaving money on the table.”
- “….the former owners regret their failure to get the best deal not just for themselves, but for their management, staff and customers.”
If these trends are important to you and the sale of your business, take time to read the entire article and then strongly consider the involvement of professionals who understand and are experienced in the complexities of business valuation and business transactions. website domain