As an advisor to private business owners, it seems that entrepreneurs are conditioned to believing that the ultimate goal is to sell their business at a whopping price and nevermore have a worry in the world. This certainly can happen, but during the postpartum doldrums following a deal, we often hear business owners grimace that the business sale was not as satisfying as they thought it might be. They may have had a good payout, but there’s something missing. To be sure, cash is “King”, but there are often intangible concerns and issues that can easily fall by the wayside because of an intense focus of squeezing every nickel out of the deal.
I cannot and will not blame business owners for focusing predominantly on maximizing financial value if that is truly their only objective. As counter-intuitive as this may seem, there may be many other objectives beyond maximizing the cash payout. The question that business owners and their advisors really need to think long and hard about is, “What will really make you happy?” Money might seem like the easy answer, but quite often it is not that simple.
Once again, I am not suggesting that a business owner throttle back on a big cash-out, but I do feel it is important for them to imagine the post-transaction world and ensure that they like what they see. The landscape is littered with sellers who became financially “set for life”, yet they are miserable as a result of the non-financial objectives that were ignored. Some of these “soft” issues include perpetuating the legacy of the business, maintaining control and protecting the welfare of the employees post-transaction. One of the ways to address these objectives is to facilitate a sale using an Employee Stock Ownership Plan (“ESOP”). Under the right circumstances an ESOP can meet the business owner’s financial objectives while also providing the ability to achieve other objectives that would be difficult or impossible to achieve with a third-party sale.
A business owner who is in the process of evaluating how to exit a business really needs to evaluate all of his or her objectives, not just the financial ones. Identifying all of the tangible and intangible goals will not guarantee that all the objectives can be achieved, but it will provide a framework for evaluating the best course of action.
Originally posted by James F. Higgins, Jr. on September 13, 2013 at 5:51pm