Business Brokers: The Aftermath
The Aftermath? What the heck does that mean?
Well, when a business is sold, there are three separate aftermaths. The seller has one, the buyer has another and the broker has the third.
The aftermath for the broker is something we go over in our course and not really pertinent to this discussion. And because the aftermath for the buyer is generally less significant than that of the seller – and the seller is usually our client in any transaction – I’m going to focus on the aftermath of the sale for seller.
In the aftermath of the sale of a business, the seller is impacted in three ways.
The Aftermath Impact
The first is the immediate psychological impact of the realization that he or she no longer owns the business that has been their life and identity for the past however many years. If they’ve not prepared for this life-altering event, it can have a significant emotional impact on them
The second impact is the “what do I do now?!?” issue. Without a specific plan, project or objective, the disorientation described above will be multiplied and seller remorse (Part 1) is likely to begin to set in.
The third impact is any lingering obligations as a result of the terms of the transactions.
It’s our job to make sure that our clients are as prepared as possible for what is likely going to be the biggest and most abrupt adjustment to the life they’re been living.
Let’s look at each impact.
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The Realization That They No Longer Own a Business
I have first hand, “up close and personal” experience with this one.
I sold a business in the late 1990s that I had started in 1991. My business was not for sale but, among other things, the transaction proved the truth of the old adage that “everything’s for sale; it’s just a question of how badly a buyer wants it.”
Even as I was driving home the night of the closing with a very handsome check in my pocket, a sense of deep unease began to bubble up from inside me. Over the next couple of days I chanced upon one or two people I knew and discovered I was unable to have a coherent conversation.
I was in the grocery store on the second or third day after the sale and ran into a long-time friend who asked how I was. A normal response would have been, “Fine, thanks! How are you?” But the best I could muster was to look at her with a dazed expression and blurt out, “I just sold my business.”
She, of course, didn’t know how to react. Most people would consider such an event a cause for celebration but the look on my face surely suggested I didn’t think so.
I cannot stress strongly enough that a seller has to be prepared mentally for what is likely to be a tectonic shift in their life. We counsel each of our selling clients and everyone in our network knows and is encouraged to use the story of how selling my business impacted me.
What’ll I Do Now?
Most people – particularly those that have started and built businesses – have to have something to do. They have to be productive.
Again, I have first hand experience with this.
As I had done for years, the day after the sale of my business, I got out of bed at 6 AM, put some coffee on and grabbed the two morning papers off the front porch. By 7 o’clock, I’d finished the papers and logged in to check my email – which was in itself a shock because, given that I no longer owned the company, I no longer had a company email address.
It was a brutal jolt to realize that, instead of finding 30 emails with orders from customers, questions from employees and information about planned trade shows, I found three spam messages urging me to buy male-enhancement pills and one sweet message from my Mom asking, ironically, how business was.
After two weeks of this, I was climbing the walls. But I was fortunate insofar as I was single with nothing holding me down and, on day 15, I booked a flight to Paris, leased a car and spent a good portion of the next few years wandering around Europe.
But even with that freedom, I felt the need to be productive and, as time passed, that need only grew. And most people don’t have that freedom! The need to be productive is present in the first week.
That productivity can be anything from service to a church or charity, learning how to paint, teaching others or even starting another business. But there has to be something fulfilling that the seller can immediately turn their energies to.
This activity can’t be something to start thinking about on the way home from the closing table. It has to be something the seller can jump right into. In short, it has to be planned.
Ideally, the seller has already been transitioning – both mentally and physically – to whatever this new pursuit is.
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We prepare – even warn – our clients from the first meeting that having something to transition into is crucial. If the client has a multi-year time schedule to exit, there’s plenty of time to plan. But if the client has not been planning and wants to sell now, we have to give them a crash course on the need to find something to do post-closing – or else to prepare themselves for the potential of a discomfiting period or felling lost.
Many transactions require the seller to stay with the business for a certain period of time.
For smaller businesses, this period is typically fairly short; maybe three to six months – and can even be as short as 30 days. But for larger businesses, the terms of the sale might require the seller to stay with the business for a year or more. This can entail several problems.
- The seller is likely to find that he or she no longer is making decisions or giving orders. Rather they’re taking directions from others to implement the plans of others. The seller may think that the new owner’s plans suggest that the business was sold to an idiot. Frustration is sure to set in.
- There’s a good chance that the seller, after watching their former business score a big sale or get clobbered because of some boneheaded decision made by the new owner, will begin to experience seller remorse (Part 2). They wish they hadn’t sold and they start looking for a way to get back into the driver’s seat in a new business. But the terms of most transactions include restrictive covenants preventing the former owner from competing or even working for a competitor for a certain number of years.
Such a situation can also trigger seller remorse (Part 3) and even drive a client into depression. The seller has to have a plan. More importantly, the seller has to know that they have to have a plan.
The Bottom Line
All of these instances are why we, as professional business brokers, have to counsel our clients about what the aftermath of the sale could look like. In our experience, few business owners have given this much thought.
There’s an expression that describes business owners to a “T” and that pertains directly to us. “To a business owner, the business has a beginning – the start up or acquisition – and an ongoing life. But it never seems to have an ending.”
But every business will have an end as it applies to the owners. Remember my oft-repeated phrase: “Every business that does not fail will eventually be sold.”
Preparing our clients for the inevitable end – and the inevitable beginning of something else – is a task we must take seriously, if for no other reason than our own self-interest.
Because if seller remorse strikes hard enough at the 11th hour, a deal that you worked so hard on could fall apart at the closing table.
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.