The Emotional Roller Coaster Ride of Selling a Business
My first boss once said, "Every deal you have will die at least five times before it closes. How you handle that will determine whether you can survive doing this for a living." As I enter my 28th year of helping business owners transition one of their proudest achievements, I still smile at that memory because it is as true today as it was then. It’s not uncommon during the deal process for both the buyer and the seller to say, "Forget it; I'm out," several times each. So the question is: How do you get a deal to close? The answer is patience, patience, patience.
Most business owners have a strong personal connection to their company. In many aspects, it’s like a parent raising a child — nurturing the company through sleepless nights, protecting it from threats, helping it recover from illness, leading and nudging it in the right direction and preparing it to survive without them. Oftentimes, the business is not only the source of the owner’s income and wealth but also a major source of their identity and purpose. Regardless of their motivation to sell, business owners will likely second-guess their decision over and over until, and for a time following, the closing.
As a business advisor, you need to have a lot of practical knowledge and expertise in business and accounting, as well as in tax and legal issues. But the most important aspect of what I do has nothing to do with that. There have been many times throughout my career that I wished I earned a degree in psychology, since the most important skill I had to learn was understanding and managing thoughts and feelings.
The stress associated with buying or selling a company often causes uncharacteristic behavioral changes. Normally calm people become volatile, expressive people become stoic, confident people become vulnerable, defensive and meek people become bold (but awkwardly so) and people who you think would sell their company to their worst enemy if he was the highest bidder will end up selling to the second-highest bidder — perhaps at a cost of hundreds of thousands of dollars — because they decided that the top bidder is not their “kind of people.”
I've learned over the years that there's far more emotion in closely held business sales than any other type of transaction. People are either putting their life's work or their life's savings into the deal. That's a good reason to feel emotional.
The separation anxiety that sellers experience is magnified by the emotional roller coaster that both buyers and sellers must ride, and that is largely defined by the process of the transaction.
First there is the courtship. The buyer and seller meet, find a certain amount of chemistry between them and then fall in love (figuratively speaking), coming to an initial agreement as to price and terms.
Next, infatuation and optimism usually give way to less blissful emotions as the parties negotiate the details of the transaction. The decline in bliss may lead to suspicion, resentment, anger and outright fury as the parties proceed through the due diligence phase. Offended sellers ask, “Why do they want that?” and “Why don’t they appreciate what they’re buying?” Skeptical buyers demand to know, “What are they hiding?” and “Why won’t they just give me what I need?”
It is in anticipation of this critical moment, usually during the due diligence period (about five minutes after the buyer’s latest request for “this or that” scrap of paper is interpreted by the seller as calling his company an “ugly child”), that we must unfailingly deliver to our clients the “3 a.m. Speech.” It goes something like this:
“One night — probably when we get near the closing and things are a little tense — at about three o’clock in the morning, you are going to sit in bed worrying about all of the negatives associated with this deal. You’re going to wonder why you’re doing this, if you are getting enough for your business, if the buyers are going to treat your employees and customers as well as you’ve treated them and what you are going to do if the deal goes through — or doesn’t. It’s natural to feel like that.”
At 3:15 a.m., it’s important for buyers and sellers to remember this law of business deals: No deal gets done unless the buyer thinks he’s paying too much and the seller thinks he’s giving it away.
When the parties are ready to tell each other to get lost at the same time, they’re finally starting to think alike.