Want to Sell Your Business Someday? This Personal Detail Is More Important Than You Think.
Buyers don't only need to trust the numbers. They need to trust you.
When we help clients sell their businesses, we teach them that there are four pillars involved in a successful sale: risk, growth, transferability and documentation. These four factors are what buyers dig into before making a decision to buy your business. From my perspective, however, there’s a fifth pillar — and it often carries more weight than any of those mentioned above, despite not appearing anywhere on your profit and loss statements.
The fifth pillar is you: the owner of the business. I've seen it time and time again in the hundreds of exits I've guided entrepreneurs through: Founder behavior can single-handedly determine whether the sale of their business sinks or swims or if a multiple gets pushed up or down. When the buyer trusts you as a person, you may be able to command a higher multiple on your valuation, and this can translate to hundreds of thousands or even millions more dollars in your pocket.
Buyers look at your past behavior as a clue to how the business has grown. A recent example of what not to do is Adam Neumann, former founder and CEO of WeWork. Neumann’s relentless drive pushed the company’s value to a mind-bogglingly high number, yet this same behavior was so toxic it led to a cratered attempt at an IPO in 2019. (If the S-1 paperwork for your IPO filing requires 10 pages on risk factors related to your own behavior, that’s a problem).
As I discuss in The EXITpreneur’s Playbook: How To Sell Your Online Business For Top Dollar By Reverse Engineering Your Pathway To Success, any founder working toward an exit will be relentlessly vetted in his or her own deal, whether he or she likes it or not. Therefore, it’s time to make sure your reputation is in order. It starts with making sure you show up to prying eyes as professional, real, honest and trustworthy.
When going for the sale, less is more
Today’s world is a buffet of digital content, and with so much on display, who you are and how you behave outside of your business is more important than ever.
In my role helping entrepreneurs exit their businesses, I’ve seen many deals progress well until the potential buyers unearth something about the owner that’s not to their taste. If there’s a photo or video of you drinking beer from funnels by the pool, you can be sure someone will discover it. And if that someone is deciding whether to hand over huge sums of money to you, he or she may not enjoy the memories as much as you do.
Like most things in life, a successful exit works best with a plan. If you’ve decided you want to one day be an EXITpreneur, start projecting a quality reputation to potential clients. Clean up your social-media feeds and refrain from posting unsavory images that show you in any light other than trustworthy and likable.
Be honest with mistakes and setbacks
Selling your business is a game of trust. If potential buyers feel at ease with you and don’t think you're trying to shake them down, the whole process will go more smoothly.
I once had a sale that was sailing through due diligence — until we discovered that some of the inventory was slow to sell, and more was essentially unsellable. Faced with this situation, many owners would be tempted to pull a fast one and sell the inventory regardless. But not my client. Instead, he contacted the potential buyer directly and offered the slow to sell inventory for a discounted price. And of course he offered to donate the unsellable inventory to charity or give it to the buyer at no cost at all. By being honest, he established trust between the two parties — and this paid off well when the deal closed.
Most entrepreneurs will go the extra mile for their clients or customers; you need to be willing to do the same for your possible buyers. How you behave along the way will influence their offer, and buyers often have an excellent nose for funny stuff.
Be honest with mistakes and setbacks
I became an advisor at the tail end of the Great Recession, and for the first few years, I struggled to sell at the multiples I wanted. It was a tense market, one full of fear and hesitation. One of my clients was a 72-year-old content creator who traveled the world with his wife, posting content and running contests. He was a very likeable guy, both online and in person.
The business was well-followed and made money through ads. And yet, the market wasn’t providing the multiples my client wanted. When I told him this, he asked me to get prospective buyers on the phone with him to sort it out.
It was a risk. He was asking me to list the business a full 30% higher than the perceived market value. But John was so likable, trustworthy and real, it worked.
How? Much like the way I felt towards him, the potential buyers immediately wanted to be my client’s friend. His likeability and trustworthiness gave buyers more confidence in his offering. Having a foundation of trust meant the buyers were willing to increase their risk tolerance and pay more for the business.
That is the fifth pillar in action. And it’s this fifth pillar that can set a business apart in a buyer’s eyes, command higher offers and result in lucrative deals. Whether you want to sell your business now or in the future, remember that you are just as important as the business you are listing.
Entrepreneur Leadership Network Contributor