Mid-States has been advising lower middle market companies wishing to sell or locate a new funding source since 1995. We have represented a broad variety of businesses, operated by an even more diverse set of owners. A common trend we’ve noted in owners over that time is that they almost unavoidably attach the business to their persona and don’t know how to separate the two. Ask them who they are, and they’ll tell you what they do for work. It’s understandable. It’s not uncommon for us to meet with people who started a business in their garage (or their parents’ garage) with no expectations of significant success. Thirty years later they find themselves owning a company that’s producing ten, twenty, or thirty million in revenue and employing hundreds of people. It’s a feat to be proud of for certain, but if they cannot separate themselves from the business, they may never realize the exit they deserve.
It's far too common for us to be brought into a business after the business owner has decided to retire. Very little planning, but lofty pricing expectations. They KNOW what THEIR business is capable of with them, with all their accumulated experiences, but have never really viewed it through the eyes of a buyer. We always suggest planning for an exit well before the owner is ready to retire and there are a lot of really good consultants whose sole responsibility is to do exactly that. It not only helps make the business more salable but can also help the seller come to terms with what life looks like post-closing.
Additionally, we find that the more time you can provide an owner for life after work the better. It allows them to slowly extricate themselves from the daily grind to which they have become so accustomed and adjust to a different lifestyle. We’ve talked to past clients who sold their businesses and 6 months, a year, two years later they lament that they “never should have sold” their business. It’s painfully obvious that they never considered what life would be like post-closing and that they never prepared themselves for the new reality. They thought about the relief from daily stress but never considered the eventual boredom that may strike or the need to feel engaged.
Understanding the mindset of the seller is critical to being a successful “dealmaker”. At Mid-States Advisors we try to be much more to our clients than just an intermediary guiding them through a sale process. We become friends, a trusted advisor to lean on, and a bit of a therapist (not licensed, please don’t approach us for therapy). But when it comes to discussing the owner’s role in the business the conversation can get very uncomfortable. They don’t realize how involved they are in the day-to-day operations and how inadvertently they’ve become an impediment to growth, both in building a management team and in growing revenue and profitability. The same traits that resulted in success in the early years can limit it once a certain capacity has been achieved.
Owners must learn to delegate responsibilities to other team members. Not only does it aid in profitable growth but it also allows the owner to focus on larger issues and helps the marketplace understand that the business is a sustainable entity, not one fully dependent on a single person. For example, say you have a machine shop dealing in very complex machining of critical parts. Customers have been working with the owner for 20+ years and have come to trust that when he says he can resolve an issue it will be resolved. If that owner doesn’t introduce another salesperson, engineer, or plant manager to the equation then there is no backstop for the owner’s eventual departure and leaves the company at significant risk of losing the customer relationship altogether.
Some owners, somewhere might read this and think “Ok, but what’s the risk? I plan to stay for X more years.” This is fine, but things don’t always go as planned particularly in one's later years, unless they want to see the company thrive after their departure. Planning for an exit with the development of a capable management team can take years and changing the perception of the outside world can take even longer.
Proper planning as described above will significantly simplify the sale process. It allows for a much larger pool of buyers to be approached, leading to a much more competitive sale process, and a higher selling price. If you can only approach a limited buyer pool, one that is close to your own backyard, then you are limiting options. But if you can approach buyers across the states or even internationally because the management team can successfully run the business with limited oversight, you have created a competitive advantage, one that many more buyers will be willing to acquire.
One of our longtime friends and a very successful management consultant once told me “Employees don’t fail the business, the owner fails the employee.” After many years and witnessing businesses fail shortly after sale, we understand that saying more every day.
We welcome discussion and commentary on this or any of our Newsletter articles. If you would like to discuss our services in more detail or to discuss the content in today's newsletter, please contact us to learn more about how we can assist your company or client.
Below are the direct phone numbers and emails for a Mid-States team member who would love to connect:
Joseph P. Alam III
Managing Director
(313) 670-5713
Joe Alam Sr.
Senior Advisor
(313) 215-1700
Fadi Sadik
Analyst
(248) 808-1055