Key Considerations in Exit Planning
- While your experience will be unique to you alone, common feelings during the sale process include guilt, worry, fear, regret, and relief.
- 76 percent of business owners who sold their businesses profoundly regretted selling within a year.
- Clarifying your intentions and expectations for the sale early on can help you make informed decisions and reduce the risk of unexpected emotional reactions.
Transitioning your business is much more than a financial transaction. It’s a major life change that can bring up a range of emotions, from excitement, to anxiety, to joy… even grief. And while it may be the right decision for you, it’s important to be prepared for the inevitable hurdles and obstacles that will come.
According to a 2019 study published in the Journal of Business Venturing, entrepreneurs are attached to their businesses the same way that parents are attached to their children. It’s no wonder, then, that letting go of a business can be so challenging.
So how do you weather the storm? Well, you do all that you can to prepare – starting with educating yourself on, and planning for, what feelings may come up throughout this process.
The Emotional & Psychological Impacts of Selling Your Business
A 2021 report from the Exit Planning Institute found that 90 percent of surveyed business owners shared that the emotional impact of stepping away from their business was above average.
While your experience will be unique to you alone, common feelings include:
You have likely formed close relationships with your employees and clients and have poured a great deal of time and effort into building and growing your business. Thus, it’s not uncommon to experience feelings of guilt as you begin the process of selling. After all, it’s one thing to think about the idea of one day transitioning, but to actually start the process and take the first steps is a whole new situation.
A major source of seller’s guilt stems from the fear of letting down your employees. You may worry about how they will react to your departure, the security of their jobs, or their loyalty to the company once you’re gone. Additionally, you may feel guilty about leaving behind something that you have worked so hard to build.
Worry is another common emotion experienced during the transition process. One of the main culprits of this feeling is the fate of the business after the sale. You may begin to question: Will your employees like the new owner? Will your customers continue to get the same level of service? Will the corporate culture you worked so hard to build endure?
In addition to these concerns about the future, the process of the sale can also cause worry. It is a complex experience that requires you to divulge a great deal of information about your business and make difficult decisions about its future. For many business owners, this is unchartered territory, and this uncertainty can be anxiety-provoking.
The uncertainty of the future can be a significant source of fear, particularly if you have devoted a lot of time and energy to your business. Your business may have become a central part of your identity and stepping away from it can feel like a loss of purpose or identity.
Moreover, the process of selling your business can be intimidating, especially if you lack experience in mergers and acquisitions. It can involve complex negotiations, legal procedures, and due diligence, which can be overwhelming to navigate. The fear of making a mistake or not getting a fair deal can be a significant source of stress and anxiety.
During the process of selling your business, it’s natural to reflect on all the effort and sacrifices that went into building it. Memories of your entrepreneurial journey may flood your mind, and a sense of nostalgia may arise. You might start to wonder, “Am I making the right decision?”
It’s important to remember that regret is a normal emotional response to change. However, it’s crucial to keep in mind the reasons why you decided to sell in the first place. Perhaps you want to retire, or maybe you saw an opportunity to pursue a new venture. Whatever your reasons, it’s important to stay focused on the future and the opportunities that await you.
Though it may come as a surprise, there are many reasons why you may feel relief during the sale process. For example, you may have been considering selling for a long time and finally found the right buyer or the right time to sell. Alternatively, you may have been feeling burned out or overwhelmed by the demands of running the business and are now looking forward to a fresh start.
Feeling relief during the sale process does not mean that you did not care about your business or that you are not sad to leave. Rather, it is a natural reaction to the end of a challenging and emotional journey. By embracing this feeling of relief, you can look forward to the next chapter of your life with renewed energy and excitement.
Whether you are transitioning your business now, strategizing for the future, or reworking an existing exit plan, there are several important steps to set yourself up for success.
The Impact of Your Emotions Before, During, and After the Sale
While there’s no magic solution for avoiding these emotions during the process of selling your business, you must learn to work through them. Sellers who allow their emotions to cloud their judgment or interfere with the sale process are often unable to achieve their initial goals and objectives.
If not managed, emotional and psychological experiences during the sale process can lead to:
Decreased Business Valuation
If you find yourself getting wrapped up in your emotions – guilt, worry, fear, or anxiety – during the sale process, it is likely your preoccupation will lead to consequences. You may begin to neglect your core responsibilities of running the business. In turn, your company may suffer. And if performance suffers, so can the business valuation, which ultimately leads to even greater stress – creating a vicious cycle.
Selling your business is not the same as selling a product. It’s a complex process with many moving pieces that can have a significant impact on you personally. As one client put it, “It’s like selling an entire being.” Your identity and sense of purpose may be closely tied to your business, and the stress of selling can bring unexpected changes in behavior. People who are typically calm may become unpredictable, while those who are expressive may become reserved. Confident individuals may become defensive, while those who are normally timid may become more assertive.
Deal fatigue is an almost inevitable aspect of the transaction process. This is a condition in which the seller or buyer begins to feel frustrated or irritated about the transaction. The pace of the deal, the overwhelming amount of detail involved with a sale, misalignment of the buyer and seller, or simply just the fact that the seller was not emotionally prepared for the sale can all lead to deal fatigue. If left alone, deal fatigue could lead to a deal falling through altogether.
According to the Exit Planning Institute, 76 percent of business owners who sold their businesses profoundly regretted selling within a year. Seller’s remorse describes the regret that a business owner may feel after selling. This feeling can manifest in various ways, such as feeling like they sold the business for too little or feeling like they made a mistake in selling it at all.
How to Ensure a Smooth and Successful Ownership Transition
While emotions are inevitable during this process, you can take action to prepare:
1. Identify why you are selling your business and your expectations for the sale.
The first crucial step to ensuring a smooth and successful transition – and one you should do well before starting the transition process – is to establish a clear understanding of why you are selling your business. Are you selling it for financial reasons? Health? Is it just that it’s become too tough? Are you ready to retire?
Additionally, it’s important to be honest with yourself about your goals and expectations for the sale. Are you looking for a quick exit or are you willing to be patient to get the best deal? Are you open to negotiating with potential buyers or do you have specific terms that must be met? What is your biggest priority of the transaction? Is it making an impact on the community? Is it ensuring the company culture you’ve built endures new ownership? Is it trying to open opportunities for loyal employees?
Clarifying your intentions and expectations early on can help you make informed decisions and reduce the risk of unexpected emotional reactions.
2. Seek professional help from trusted advisors.
You can’t do this alone – and you don’t have to.
Seeking professional help can provide valuable insight and expertise to guide you through the complex process of selling a business. For example, selling your company to a family member or employee requires a very different strategy than selling to a third party.
Moreover, professional advisors can help you maximize the value of your business, ensuring that you receive the best possible return on your investment. They can assist you in determining the valuation of your business, assessing the marketability of your business, and strategizing a financial plan for after the sale.
Hear from Jeremy Smith as he shares his firsthand experience working with Eide Bailly during the transition of his business.
The client testimonial provided for Eide Bailly Advisors, LLC., is an individual experience and may not be indicative of the results, recommendations, strategies, or services that every client will receive. Each client's financial situation, goals, and risk tolerance are unique, and the services we provide are tailored to individual needs. Past performance is not necessarily indicative of future results. Before making any investment decisions, it is important to consult with us to develop a personalized strategy that aligns with your specific financial objectives. This client was not provided compensation for this testimonial nor was there a conflict of interest in sharing their experience with us.
3. Develop a plan for the six months following the sale.
You do not want to wake up the day after selling your business thinking, “Okay, now what?” This can lead to an increased sense of seller’s remorse and a greater possibility of falling into a personal crisis.
Instead, throughout the process of transitioning, consider how you want to spend your time once the deal is closed. Consider choosing three to five to-dos or areas of focus. This way, you’ll have some structure after you leave.
- Creating a comprehensive wealth plan that considers your new financial situation and goals.
- Exploring investment opportunities that align with your values and long-term financial objectives.
- Working with a team of advisors to develop a personalized retirement plan.
Whatever it is you want to do with your time post-sale, write it down and act.
4. Avoid staying closely connected with your business – at least in the beginning.
While you may feel yourself pulled back to the business, in general, it's not productive to routinely visit or check in after the deal closes. Although it may be difficult to accept, your former employees need to move on with the new owner – and you need to move on, too.
The exception to this comes when a buyer and seller agree to a transition period in which the seller will stay on for an agreed-upon time. This helps ensure a successful change of ownership.
There’s Life After the Sale
It's important to recognize that any emotions that arise throughout the sale process are normal. However, you must not let these emotions hold you back from making a decision that is ultimately in the best interest of yourself and your business. Remember that selling your business can be a positive step towards new opportunities and growth, both for yourself and your employees.
Eide Bailly Advisors, LLC as a matter of policy, does not give tax, insurance, or legal advice to its clients. The effectiveness of any of the strategies described will depend on your individual situation and on a number of complex factors. You should consult with other professionals, as applicable on proposed strategies before any strategy is implemented.