Bridging the Value Gap

According to the Business Enterprise Institute, the biggest issue is that owners don’t believe these gaps exist: at least not for them. And if owners aren’t convinced that the gaps exist, they will be reluctant to invest any resources into bridging them. Harvard Business School Professor Howard Stevenson has stated that this common misperception is based on the entrepreneur’s inherent optimism and lack of knowledge. Separately, these issues are unhealthy, but together they create a massive obstacle to planning a successful transition, ultimately killing a satisfying exit experience.

Typically, owners overestimate financial value because they know how difficult it was to start and build their business to its current state. They fall victim to the notion that what they put into the business is the same as what a buyer will get out. They are bullish on future business growth and investment performance. They are in denial about how much money they will need in retirement to maintain a desired lifestyle, and haven’t given a whole lot of thought to how long they will live after they leave their companies.

Owners often use this optimism and lack of knowledge as license to postpone taking the actions necessary to create the desired outcome. Until they understand that where they think they are is far from where they actually are, and that where they need to be is even further from where they think they need to be, it is business as usual and nothing will happen. Knowing — not guessing — what you have and what you actually need is key to closing the many gaps that exist.

Owners who haven’t thought through life after the sale of the business often minimize or overlook the non-wallet considerations altogether. The Successful Transition Planning Institute (STPI) calls these the head and heart issues around leaving a career. These are the “soft” emotional challenges that transactional advisors don’t address, which, if not resolved up-front, can cause an owner to sabotage a transaction for no business reason.

When considering a sale, an owner’s goal is to achieve perfect alignment (zero gap) between the various factors. For most owners, this is difficult to achieve without the help of experienced advisors. The table below shows some of the areas that skilled advisors can address.

Selling a business is largely uncharted territory for people who have spent their lives developing processes that provide, market, and sell a product or service at a profit. But when it comes to implementing an effective process that markets and sells a business, the game changes dramatically. In nearly every case, it takes a team of experienced, subject-matter experts to navigate out of the briar patch of legal, accounting, valuation, planning, and marketing considerations that are involved.

An exit advisor can address the biggest gap of all: providing an understanding and knowledge of the difference between imagination and reality ahead of the negotiation process. It takes time and experience to bring everything into alignment and owners struggle to coordinate this unfamiliar process while still running their business. It was Mark Twain who said “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”