By Terry Mackin
July 1, 2010

While most small business owners have been adversely affected by the recent economic downturn, many still see the opportunity to sell their company as the next logical step in their exit plan. And like most business owners that have grown their company for that ultimate sale, what they will get for their business – the dollars and cents – is paramount in their decision to sell the business.

It makes sense doesn’t it? We are all programmed to get the most out of everything and for everything. How much can I get for my car? What is the maximum I can sell my home for?

Everything in my life is for sale at the right price, except for my spouse and kids.

And not that it doesn’t make sense. You have worked hard to build your company. If you are like most business owners of the baby boomer generation, you have built it from the ground up, put in long hours and dealt with the stress that is part and parcel of running a business to get to that one point where you can finally exit with the "American dream" of the promise of a comfortable retirement.

Your business is also more than likely your biggest asset. It is largely responsible for your ability to afford a nice home, cars, and other valuable assets. And this will be your last big chance to “cash in your chips.” Why shouldn’t it be for the most you can get?

The process of selling your business must include an education in the various steps that will be required to position it for the market and find an audience for your company. This will ultimately set the stage for what the offer will be and under what terms a buyer will be willing to purchase it. Yet, when I sit down with clients who are interested in learning more, the discussion inevitably turns back to that all important question; what is my company worth?

The answer can most often be found in a professional evaluation, with the understanding that the structure (cash, note, earn out, etc.) can have an effect on present and future value. As a point of reference, getting an evaluation is an essential starting point for selling your company. What could be more valuable than understanding whether your goal for a comfortable retirement can even be met, especially after the toll the recession has taken on your bottom line?

But sometimes decisions are not that clear.

Once you have a value starting point, the next step is to find buyers that should have that same belief in what you think it is worth, right? Why spend time talking to anyone if they don’t already think your lofty goals of a maximum return can be met? And of course there should be plenty of them! What better way to get a premium price than to auction your company off to the highest bidder! That would seem to be the most logical path given your monetary expectations. But is that what will complete the picture for you and this asset you spent years building? Although it is true that you don’t want to waste your time talking to potential buyers without the financial ability to do a deal, now would not be the time to rule out any buyers that show an interest in your company, because at some point, maybe without realizing it, your sensibilities change.

Could there be more to this transaction than just the dollars? It often comes as a byproduct of the "courtship Q&A"; that time spent at the first meeting in which the buyer listens intently while you talk about all of the things that you have done over the years to make this a valuable acquisition. You start to think about the legacy of the company, the name over the door, where the business will be five years from now. You take into consideration your employees and their welfare after the sale. How will they benefit from this transaction? And transition time, the amount of time your ego will have to accept being an employee after the sale. And yes, the risk involved with a deal structured around a long term return. But, most importantly, you start to consider which buyer you believe you can trust and will be capable of doing what they are telling you they can, taking your “baby” and caring for it in the same way that you have for all of these years. And suddenly, the dollars are not necessarily the most important part of the transaction anymore.

I can see clearly now.

For the most part, I’m sure it’s hard to believe that this change in focus would ever occur, especially when you are coming to the party with the largest stack of dollars being your ultimate goal. And how does this play out in the real world? Eight times out of ten my clients have accepted an offer that was not for the most money, but instead encompassed the two things they recognize are just as important, trust and peace of mind. And those that did go for the brass ring were often unhappy with their decision in the long run.

The M&A road is littered with deals that have gone bad due to deteriorated relationships and misguided business plans. Being aware of all of the aspects of the deal that are important to consider will simply help you prepare for this "psychological shift" so that you can make the right decisions when the time comes and not just do it for the money.

I offer you the same lesson as you consider what will make sense for you.

Terry Mackin is managing director of Generational Equity, a company that serves small businesses with revenues of $1-$100 million for exit strategy planning, strategic acquisitions, management buyouts, divestiture strategies, structuring and negotiating transactions, fairness and valuation  opinions, estate and gift tax, litigation support, preparation of  selling memoranda, coordinating closing related activity, and identifying potential buyers and acquisition targets. www.genequityco.com