I guess all entrepreneurs have an emotional attachment to their business which prevents them from even contemplating selling the same until circumstances force them to. This is typically true of Indian Entrepreneurs.
Just yesterday I was in meeting where it was established that even though one of the business units of the family was making continuous losses, and there seems to be no way out, still the promoter who had started the same and nurtured it over the years was continuing to cross subsidise the same instead of looking to exit. There are many such similar situations where the promoter’s emotions have prevented the right solution being adopted.
This led me to try and pen down what are the top 5 errors that most entrepreneurs make while trying to divest their existing business.
1. In todays world the only thing constant is change. As such it is most important to decide right at the beginning of a venture as to when you would like to make an exit. It is like the stock market, you invest in a share with a certain return in mind and then stick to the plan or you might end up loosing your shirt. In any case, even in case one has not decided this in advance, one should try and give it enough lead time or else one will not do justice to the exit strategy and end up loosing in the final deal. Further, in most cases the Buyer would want the existing management to continue for a specified period so as to achieve a smooth transition and that time should be also be factored in by the Seller.
2. Selling a business is not like selling Real Estate, although, today, even selling real estate has become complex. Businesses are of various types and shapes and consist of elements which can have a different meaning for different people. As such it is advisable to take the assistance of someone who has handled such transactions and not try to do it yourself. In most cases you will come out ahead by getting a better price. I remember in one of the transactions that I was involved in from the buyers side, one was able to bring down the valuation by more than 50%. The impact ran into millions of dollars.
3. Competition drives up the price. As such it is of utmost importance to try and have more than one buyer or else you end up loosing by not getting the right price. This is true of every transaction in any sphere of life. This too can be achieved by taking the assistance of Investment Bankers/ Management Consultants who specialise in such deal making. It will be well worth the effort.
4. Identifying the right buyer is another important aspect which needs considerable attention. Typically a Strategic Buyer would see a strategic fit with their current line of business and be agreeable to pay a greater price as compared to a Financial Buyer who is primarily looking at it as a specific period investment and would like to see returns by way of Dividends and Appreciation in value over a defined period before exiting. they would not normally interfere with the management of the company except to ensure proper financial discipline and control. A Strategic Buyer would see longterm value as the acquisition would strengthen and add synergies to its main business.
5. Although I have touched upon this in an earlier point, however, I have found that most SME sector entrepreneurs do not know how to project their key strengths / assets that could influence value substantially. You need to identify all your value drivers, both tangible and intangible, more so in case you are in the Services Industry. These could be the credentials of the management, the brand recognition, unique process or process maturity, intellectual property etc.
In the end it is best to remember the Biblical saying “Where there is no vision, the people perish”
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