Burnout or time to sell? How owners can tell the difference

Owners who feel burned out often wonder whether it is time to sell. The answer affects their finances, their employees, and their life after the business. Getting it right takes clear thinking about what comes next and preparation before a buyer enters the picture.

On today’s episode of Business Trends Today, we’re joined by Scott Hanson, Co-founder of Allworth Financial and Author of The Private Equity Advantage. Hanson says owners can tell burnout from a rough patch and what to settle before they sell.

How to tell burnout from a rough patch

Burnout in an owner often marks a shift from builder to operator. Growth years bring new ideas to try and something exciting to build. Later years can become a game of whack-a-mole, with owners solving each day’s problem, Hanson said.

Owners who reach that point should sort out who they are and what they value. A psychologist can help, Hanson said. He went through that process at age 50. His company was profitable, and his clients and employees were happy. Even so, he felt like an operator and was losing interest. He sold a stake to private equity to grow the firm, and his career changed completely.

"Just because you've been running a business for 25 years doesn't mean you need to run it for the next 25 years."

Burnout points to a few paths. Owners can pivot to a new chapter or sell to a strategic buyer and retire. They can also bring in outside capital and reinvent the business. Succession planning happens either way, by choice or by default when a health issue or death forces it.

“Either we do our succession planning or somebody else is going to do that for us when we have a health issue or die,” Hanson said.

Define life after the sale, before selling

Owners get one shot at selling. Buyers may have purchased dozens or even hundreds of companies, Hanson said.

Advisors such as investment bankers and business brokers can carry conflicts of their own. Their focus is often the highest price. They may give less thought to the terms an owner lives with after closing, Hanson said.

Price can work like a scorecard, which tempts owners to chase the top bid. Owners should ask what their families need and what they want to do next. Some will accept a lower price for better terms.

Find the right buyer, at the right time

Employees, clients and vendors top the list of concerns for most owners. That makes the choice of buyer critical, Hanson said. A firm building a national roll-up may treat a company as a number. A longtime local competitor will probably keep the people in good shape.

Private equity varies widely, as any profession does. Some firms focus on growth and others do not. Owners need to do due diligence on the buyer. Many firms ask owners to roll some equity into the deal to align interests. The second bite can be larger than the first, Hanson said.

"If you only have one buyer, you don't have a buyer."

Timing of the news matters too. Early leaks let competitors call key people, and employees start writing their own stories about what may happen. Owners should wait for a clear plan and a communication strategy. Retention incentives for key people can run 12 months after closing.

Buyers can also cut the price late in the process. A letter of intent may carry a large number. Due diligence then produces a lower one after rival bidders have left. Hanson called the practice retrading.

Competitive bidding protects owners, because each bidder knows another firm waits behind it. Investment bankers add cost, yet the sellers they represent arrive with clean books. Hanson found them easier to work with while buying companies at Allworth, even when the price ran somewhat higher.

What the right buyer can be more important than the price

A target number can mislead an owner. Hanson recalled a dinner with a woman in her early 60s who was selling a $20 million business. She wanted to keep working afterward. He told her that $18 million or $22 million would not change her standard of living. The right partner would, and at $18 million that partner would probably have been her best choice.

Buyers also pay for strategic value. A company with small profits, or none, can still sell for a large sum. A buyer may want its technology, platform or market. Capability is often easier to acquire than to build, Hanson said.

A business that depends on its owner has little to sell. A second-generation leader already in the seat makes the company more valuable. The founder can move to a chairman role. Buyers then worry less about what happens once the owner has been paid.