Over the years I have been involved in, and observed, many deals that really leave me scratching my head. In these situations, I end up asking myself.
If you are trying to make a change, why aren't you actually making the change?
An owner manager might come to me and tell me that they have had enough of their business and they want to move on to the next phase of their lives and retire. However what often happens though is they end up in a deal that is complex and ties them in for a period of time.
This often results in them continuing to be “in” the business for years with similar stresses and pressures and that retirement doesn’t really materialise.
The issue is this, most sellers of businesses wants two things out of deals. Firstly they want FREEDOM, they want to move on with their lives. Secondly, they want CASH.
Now there is an inevitable trade off between these. No-one really sells their business and gets an amount of money that is more than they would have had if they had kept it forever.
SO….. there is a certain trade off between CASH and FREEDOM.
For a very attractive business the trade off is small, the offers fly in at very high multiples and restrictions and role of the owner going forwards is minimal. So in that situation both goals can be met.
However, what if the business doesn’t have a strong management team? What if the trade is somewhat reliant on the owner? What if there are issues that need someone to stay around to solve?
Well what typically happens is that the deal structure becomes more complicated. An “earn out” gets added, meaning the seller has to stay around for years to get all of the value. The owner is tied in to performance or the relationship with the main client.
These are the situations that are difficult and mean that full retirement has to be postponed. But these are not the situations that leave me scratching my head.
This is the real question. Do you need the money from the deal to retire? No-one really asks these questions. Deal momentum is a real phenomenon, often driven by advisors who are paid a percentage of the price achieved. But someone should be asking that question, because the answer is really important.
If the answer is YES, you do NEED the money to retire, then I guess you have to stay and do what needs to be done. But if the answer is NO and like so many owner managers 30 years of owning the business means that the business (whilst valuable) is a minority of your assets (if you are honest with yourself), then why are you risking your retirement for money that you don’t NEED?
This is a sensible question that seems counter intuitive until you ask it and really think about it. If you are of retirement age then you have passed into the phase of your life where time is your most scarce and valuable commodity.
Why risk years of it for a 5, 10 or ever 20 or 25 % increase in your wealth? It really makes very little sense, but is in your blind spot until you ask this question. So…. We get back to the start.
If you are trying to make a change, why aren't you actually making the change?