One of the main issues that we see in a business sale transaction is a lack of management depth. Meaning, without the business owner, the company couldn’t run properly. This is a big red flag for buyers. This blog will show you the warning signs that you, as the business owner, are too involved in the daily operations, and will teach you how to ultimately transition out of that role.
Problem #1: Business Owners Are Overly Involved in Daily Operations
Oftentimes buyers will become less interested if the selling owner(s) is overly involved in the day to day operations, or if they have too much influence over customer/vendor relationships.
Example: Think about it this way. Say you were looking to purchase the best professional sporting team. However, the purchase agreement means that the coach will retire, leaving you with a team of star players, but no leader. With no back-up to take the retired coach’s place, your team ultimately becomes less effective. As the buyer, you can see how this deal wouldn’t sound very appealing.
Sometimes in this situation, the buyer will make a portion of the sale price contingent on the owner staying in the business for a period of time. This helps them keep things operating as normal, while they work on transitioning the owner out of the business over time.
Ideally, having a transition plan in place is something all business owners should work on before considering a business sale. With the right help, you can find and train the replacement you feel will best fit your company moving forward. Having these critical steps already accomplished when deciding to sell your company will not only give you peace of mind, but will prove to be a more attractive deal to potential buyers.
Problem #2: Management Team Replacements Have Not Been Trained/Hired
Another related issue we often see happens when the existing management team members are close to retirement, and replacements have not been trained or hired.
Most Private Equity and Family Office buyers are looking for companies that have solid management teams and are not reliant on the business owner looking to retire. These buyers are focused on that issue as much as they are the financial performance of the company. If you go to sell your company without building a solid management team, the buyer pool will be limited as most of the Private Equity and Family Office buyers will pass on the opportunity and you may be left with only being able to sell your company to a competitor that has their own management team in place.
It’s important to make sure everyone is on the same page. Addressing this issue with the management team well in advance of a sale can be very important to a successful transaction. Place a priority on getting the right replacements, in the right chairs, at the right time. Once you have the right people, set up a system to have your experienced professionals train these new members on everything they will need to know in order to be successful.
You can never be too prepared. Hiring a qualified M&A professional, like Lutz M&A, can help you organize and set up your leadership team in a way that will appeal to buyers and get you to that successful deal closing. If you have any questions or would like to learn more about our merger and acquisition services, please contact us.