Episode 55: Mistakes: 7 Mistakes to Avoid When Selling Your Business – Member Case with TK Herman

There are 7 common mistakes made when trying to sell a professional services firm. On this episode, we interview TK Herman, President and Co-Founder of Aptera, a focused IT consultancy and managed services provider.

Transcript

Sean Magennis [00:00:15] Welcome to the boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. Our goal with this show is to help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis, Collective 54 Advisory Board Member, and your host. On this episode, I will make the case that there are seven common mistakes made when trying to sell a professional services firm. I’ll try to prove this theory by interviewing T.K. Herrman, president and co-founder of Aptera.  Aptera is a focused IT consultancy and managed service provider.  Aptera transforms your ability to deliver custom software with high performing development teams, coaches and consultants. They are a trusted partner of Fortune 500 companies with a track record of tackling complex global development projects. TK, great to be with you and welcome. 

TK Herman [00:01:21] Yeah, thanks so much for having me, Sean, I really appreciate the invite onto the show. 

Sean Magennis [00:01:25] It’s such a pleasure. Let’s start with an overview. Can you briefly share with the audience an example of a mistake to avoid when selling your firm? 

TK Herman [00:01:35] Yeah, I think, you know. So we recently went through an acquisition, so I’ve got experience in this realm and you know, one of the things that I would say that there are three areas of knowledge in the world. There’s the what you know, there’s the what you don’t know. And then there’s the what you don’t know that you don’t know.  And and through the whole process, there were a lot of things in the realm of what you don’t know. You don’t know that I came across. And so I’m I’m a much smarter person today than I was, you know, four or five months ago. And one of those things would just be, you know, kind of asking the question and really trying to spend more time aligning some of the changes that are going to be happening with the integration of the two companies. Because, you know, I think that everyone is focused on getting to the same endpoint, but how to get there in the timeframe and in how to go about that, I’d be a slight difference. That’s just one example of of something that you might consider thinking about. 

Sean Magennis [00:02:35] That, you know, that’s a wonderful example. And I share that with you because in a in an example that we’ve helped with recently. Soon, as the acquirer was identified, they advocated for starting integration conversations early on because it is often left to the end. And it really does make a difference when the rubber hits the road that you’ve thought through all the nuances so. So thank you for that example. It’s a critical one. And you know, if I think about selling a boutique, we know it’s a high risk, high reward initiative. We also know that every situation is different. So I’d like to spend some time getting your thoughts on the common mistakes made when selling. I’ve selected seven to walk you through, and I’ll ask to get your thoughts on each and feel free to share whatever comes up for you as we go through these. So the first mistake is that boutique owners are unclear as to what they want from a sale. So if you’re unsure of who you are, you’ll be unhappy with the sale. If you don’t know where you’re headed, you’ll be unhappy with the sale. What are your thoughts on this concept? 

TK Herman [00:03:47] I would completely agree with that, I think that before you. The more time that you can spend sort of self reflecting and look in the mirror to really understand what is the goal and why you’re heading down this path, the more likely likely you’ll be to be happy on the other end of the transaction. You know, and again, I think you hit on those points, whether it’s, you know, what am I looking for for my company? Because, you know, more often than not, acquisitions are done to move the company forward. Right? And then also, from a personal perspective, you know, what is life look like after that? And what does that mean to you? And and if you’ve had the business for quite some time and you have somebody else coming in and kind of running the business, you know, is that going to affect you emotionally? Some people will say yes, some people will say no, but I think, I think really sitting down and reflecting on those points and having a very clear understanding of where things sit for you personally on the side. And I think to the last thing I’d say is is the more conversations that you can have with people that have gone through this process to just try to learn from them along the way, I think that that that would be extremely helpful. 

Sean Magennis [00:04:55] Those are those are great points of advice. And that brings up mistake number two, which is sometimes boutique owners try to sell an unsellable business. And so your boutique needs to be attractive to a buyer. It almost requires you to look at your business through the lens of an investor. What do you think of that TK? 

TK Herman [00:05:17] I would 100 percent agree with that. You know, when when you’re selling a professional services company, there’s no, you know, machines to buy or inventory to buy. The person that’s acquiring your business is really acquiring the team that you’ve built and the client relationships that you’ve cultivated over the years. And so you need to be really need to become really clear on that. And then also look at and say, how reliant is this business upon you or you and a few people? Because the the the more you can get the business to the point where it’s not really reliant upon you to drive the day to day pieces forward, the more value there is in the business. 

Sean Magennis [00:05:58] You know, again, I can’t agree with you more because that’s what we see so often. Getting in the way of a successful sale is that the owner founder hasn’t thought of it in the way that you’ve just expressed.  You know, mistake number three. It can take years to sell a boutique. Yet some owners try to sell a boutique in a matter of months, and a good exit is an exit on your terms. It does take time to stack the deck in your favor. What are your opinions on this? 

TK Herman [00:06:29] You know, it’s so interesting because we did not anticipate going through the acquisition even at the beginning of this year. And so this is we obviously knew an acquisition would happen at some point in time. That was always the end game. But did not expect that this year, even really in the next couple of years. And and the right opportunity came along and we decided to move forward with it now. We were fortunate that we had sort of positioned the company and set things up in a way that it made that process easier. But I’ve spoken with a handful of people since the acquisition that just reached out for some advice. And you know, I can’t stress enough the importance of again, making sure you have the right leadership team in place, making sure you have, you know, processes and procedures and those kind of things that are easy for an acquire to come in and kind of take charge of and move forward. But then also there is just a tremendous amount of back back office work that needs to be done. So making sure that you’re accounting, you know, is all in order making sure our files are all in order. Because the more that know, the more time you spend there, the the easier it’s going to be through the diligence process. You know, that’s one of the things that that, you know, our comptroller had mentioned to me during the process. Gosh, if I had known we were going to do this, I could have spent the last year actually even preparing that much better. And I couldn’t argue with that. That’s a very valid 

Sean Magennis [00:07:52] No, it’s a very valid point. No. And but that’s a great point for our listeners, too, is that, you know, you’re a practical example of somebody that was fortunate because you were prepared and you had a lot of things in place. But if you had had to do it over again, potentially, you know, in the example of the accountant having that time to prepare is so much better and could potentially impact, you know what you get out at the end of the day from the from the sales price. So let’s talk about you. You alluded to this several times. Let’s talk about succession planning and often owners under invest in succession planning. And after you sell, you’ll want to see that your boutique does well without you. So what are your thoughts on the importance of succession planning? 

TK Herman [00:08:42] I think it’s I think it’s highly important again, even if a sale is is. You know, a decade down the road. Yes, I think from day one, when you start a business, you should start setting the business up for it to run without being there day in and day out. And it’s the old adage, you know, you have a choice. You can either work in the business or you can work on the business side. And it’s it’s very difficult. You know, I’ve certainly empathize with companies that are small that have, you know, just five or 10 people because the owner has a really difficult time sort of balancing those two things. But if you can, if you can from the beginning focus and say, I’m going to spend, you know, even if it’s 51 percent of my time on the on the business things. And over the course of time, you’ll get to the point where where that becomes kind of your main role in the business. And I think there’s there’s to me, there’s three key ingredients to setting up a leadership team or setting up a team to be able to carry the business forward. And they’re very simple. The first one is just hire outstanding human beings. Yes, just just great people. Obviously, they need the skill set that they they you just want great human beings to represent you to to work with you every single day and to help deliver that great experience to your clients. And then the second piece is is point them in the direction that you want them to go. And the more narrow that direction can be, the better, obviously. So yes, we we were for a long time kind of a shotgun approach, and we started trying to narrow that down to more of a rifle, but point them in the direction you want to go. And then the third piece is, in my opinion, it’s the hardest piece and that is get out of their way. So in other words, you know, you’ve hired great people, you’ve pointed them in the right direction and then now it’s your job to get out of their way and let them move forward and let them make mistakes, you know, and let them learn from those mistakes. A phrase that I always use is Don’t let perfect ruin good. If there’s one thing that I can say that my business partner and I have did a good job of over the years was creating an environment where we let people try things and make those mistakes. And there were times where I, I would look at something that somebody wanted to do, and I would think in my head, that’s never going to work. But I also looked at and said, OK, if it doesn’t work, is this going to be a detrimental thing to our business? Is it going to hurt the client hurt and hurt an employee? And if the answer was no and there really wasn’t a significant risk and let them go down that road because A, I could be wrong, I’m not. I don’t have all the answers, right? But B also, if if it if it didn’t work, there’s a whole lot of lessons to be learned there. And the more that you empower people like that, the more you’ll find yourself having time to work on the business as opposed to in 

Sean Magennis [00:11:25] Outstanding and I loved you three key ingredients, and I’ll refer back to them at the end of the of the podcast because I think they they certainly resonated for me. So let’s talk about mistake number five. This mistake is where entrepreneurs think that they can sell their business on their own. It can result in tactical execution errors that can cost millions of dollars, and our recommendation is to hire the best advisors that money can buy. What is your opinion on this best practice? 

TK Herman [00:11:55] So actually, it is actually kind of a funny story that reflects back to Greg Alexander, who obviously has been on your podcast numerous times. Yeah. And so we were fairly deep into diligence and deep into the process, and I was having a conversation with Greg and and he said, Hey, do you have counsel? And I’m like, You know, of course we have a lawyer, and he goes, No, but do you have somebody with experience in this? And I’m like, Oh, I think they are. And and he goes, OK, hang on. Let’s pause a second. And he said, You have to you’ve got to go out and find somebody that really not only not only in an attorney, but also your accountant, and make sure that they’re experienced in this. And so I did that. I took that advice and and asked around, found somebody and holy mackerel. My eyes were open because we again we were we were fairly deep into diligence. I was very fortunate that that that this law firm was able to to take us on. But there were so many things, so many things that I had. I would have had no idea of the level of questions that needed to be asked. And so I can’t stress that point enough. That’s 100 percent true. 

Sean Magennis [00:13:01] Absolutely fantastic. And then mistake number six is boutique owners often get attacked after the sale. This is more personal. You know, they can take it personally, and this causes seller’s regret. So our recommendation there is give yourself the permission to not take it seriously and really guide yourself. What are your thoughts about this? 

TK Herman [00:13:24] Yeah, I would agree with that. I think that you have, you know, a wide variety of reaction, you know, everything from from people that are very upset that you sold the business to people that are excited about the opportunity and it’s easy to find yourself like anything else. For example, if I was a new YouTuber and I started a new YouTube. You know, I’m going to get some heat and some shade thrown at me on on the comments and I have a choice to make. Do I focus on those? Yes, or do I focus on the positive things that are coming out of it? And so like anything else in life, whether it’s whether it’s selling your business or anything you do. You know, the more that you can like align your your, your mindset and and your heart under the positive things, the better off you’ll be, for sure. 

Sean Magennis [00:14:10] Yeah, wonderfully answered. And then finally, mistake number seven is to be sure to understand who the business is being sold to and what their motives are. It’s particularly important if you’re on an Earnhardt or rolling in some equity. This prevents unwanted surprises from cropping up. The buyers ultimately own the asset once you’ve sold it. What are your thoughts about this? And I know it’s early in for you, but what are your thoughts? 

TK Herman [00:14:36] Yeah, I would totally agree with that. And even if there’s not an earnout or there’s not equity, I’m very much I’m very much invested in the people. You know, we had our business for 18 years and I care deeply. I care to actually care more about the people that work for us than I care about the work product that they delivered. And I always believed that if we if we operated that way as a company that will come back and give us good karma sort of in return. And so, yeah, I would totally agree with that. The more that you can align yourself and ensure that the things are aligned, the better the whole process will be. And you know, some of those things, that’s where it goes to, I think, going out and asking a lot of questions of people who have been through the process before because you as somebody new coming into this won’t have any idea of what questions to ask. And and that’s that’s certainly an area where there are things that that could probably be easily missed 

Sean Magennis [00:15:33] A great point. And again, thank you. I mean, these are all very vital mistakes to avoid, and there are many others, too. To your point, I mean, going through and having great advisors, having them give you the benefit of the wisdom of what they recommend asking is also very key and every situation is different. However, we’ve given you seven of the most common mistakes for you to avoid as a boutique owner of a professional services firm. TK thank you. This brings us to the end of this episode. I prepared a 10 question Yes/No checklist, listeners. Please ask yourself these 10 questions. If you answered yes to eight or more of these, you will avoid making these mistakes when selling your firm. T.K. has graciously agreed to be our pure example today. Thank you, TK. So I’ll ask you the essential question so we can all learn from this example. So question number one, do you know what you want from the sale? 

TK Herman [00:16:38] I would say yes, when we went into this, I would say yes. 

Sean Magennis [00:16:41] Excellent question number two. Do you know what you were going to do after the sale? 

TK Herman [00:16:48] Yes, that was a yes for for me personally as well.

Sean Magennis [00:16:52] Great. Number three, is your business attractive to a buyer? 

TK Herman [00:16:57] Yes, it was. You know, and again, we we worked hard over the years to to to be very deliberate about creating an attractive company. 

Sean Magennis [00:17:07] Great. Number five, do you have a handpicked successor? 

TK Herman [00:17:12] We did have a leadership team that was able to basically roll the business forward, even if we hadn’t sold the business they were, they were making the majority of the decisions along the way. So we we were in a good spot for sure. 

Sean Magennis [00:17:24] And I did skip number four because you had a sellable boutique and you’d kind of illustrated that before. Number six is the successor ready to take over? 

TK Herman [00:17:36] Yeah, I would say yes. But again, we we were purchased by a large company, so that’s a little more complex. But but as far as that, the people we had, yes, I would say without a doubt, they’re just top notch people. 

Sean Magennis [00:17:49] Excellent. Number seven, have you lined up an all star team of advisers to help you? 

TK Herman [00:17:56] I didn’t, but I have them now. So if I was ever going to do this again now, I would know who to call. Excellent. 

Sean Magennis [00:18:05] Eight. Are you prepared for the post-sale criticism headed your way? 

TK Herman [00:18:10] You know, I don’t think that I was I know that there would be a lot of emotion around it, but some of that I did not expect. But I understand it for sure. And so that’s probably one area that I didn’t prepare mentally for, like I like, I probably should have. 

Sean Magennis [00:18:25] Yes. And then number nine, do you understand who you were selling your boutique to? 

TK Herman [00:18:30] Yes. Yes.

Sean Magennis [00:18:32] And No. 10. Do you understand their motives for buying? 

TK Herman [00:18:37] Yes, we’ve we’ve we felt pretty confident in in their motives and why they wanted to acquire us. We actually had the good fortune of having a very, another company that was acquired by them that we were very friendly with their owner. And so we were able to get some behind the scenes look into things prior to the acquisition. 

Sean Magennis [00:18:57] T.K. Fantastic. I’m just going to remind the audience again about the three key ingredients that you alluded to during the course of our time together. The first was hire outstanding human beings. I thought that was profound. And then point them in the direction that you want them to go and keep it narrow. And then the third, which I think is a vital lesson. Certainly, it has been for me and I think it will be for our listeners. In fact, I know it will be for our listeners is get out of their way, which is the hardest thing to do. So again, thank you all of our listeners. You’re building a business that you could likely run forever. You’re also building a business you could sell tomorrow if you do decide to sell. You want to do so on your terms. Give yourself plenty of time to avoid the mistakes that T.K. and I have shared with you today.

And if you enjoyed the show and want to learn more, pick up a copy of the book The Boutique How to Start, Scale and Sell the professional services firm written by Collective 54 founder Greg Alexander.

And for more expert support, check out Collective 54, the first mastermind community for founders and leaders of boutique professional services firms.

Collective 54 will help you grow, scale and exit your firm bigger and faster.

Go to Collective 54.com to learn more.

Thank you for listening. 

Episode 40: The Boutique: What No One Tells You About Failed Attempts to Exit

A top reason owners fail to exit is a decline in performance during the process of selling the firm. On this episode, we discuss how to avoid making this mistake.

TRANSCRIPT

Sean Magennis [00:00:15] Welcome to the Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host. On this episode, I will make the case a top reason that owners failed to exit is a decline in performance during the process of selling their firm. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s founder and chief investment officer. Greg has helped many owners avoid this mistake and has some practical advice on the subject. Greg, good to see you. Welcome.

Greg Alexander [00:01:09] Thanks, pal. Good to be here. It looks like today we’re going to take one of the WTF moments on this space. Should be a lot of fun.

Sean Magennis [00:01:18] Yes. This is a WTF moment for sure. Greg, for the benefits of our new listeners and for our regulars. Can you explain the issue we are discussing today in more precise terms?

Greg Alexander [00:01:29] Sure. So after selecting an investment banker, the official process to sell a firm kicks off. The workload placed on the management team to successfully exit is large. For instance, there is a never ending stream of information request. This creates a huge distraction and the net result of this distraction is a decline in revenue and profit performance during the nine or so months it takes to exit. This decline causes the potential buyers to doubt the dependability of the projections. And unfortunately, with their confidence shaken, investors pull out of the deal. This happens far too often. The good news is, is this is avoidable.

Sean Magennis [00:02:16] So let’s explore this good news. How can one avoid this mistake, Greg?

Greg Alexander [00:02:20] So there are some best practices to follow. Let me share a few of them here. First time the process to sell the firm when there is a robust backlog, backlog is defined as work that is signed and under contract. It has not been delivered yet. The future revenue is highly dependable. It reduces the risk of a decline in performance during the process. A good rule of thumb is to have nine to 12 months of backlog heading into the process. So, for example, let us say a firm communicates to a buyer a 12 month revenue projection of 50 million dollars. An owner should have at least thirty seven and a half million or the equivalent of nine months under contract. In backlog before kicking off the process to sell. This will keep the cash flow flowing at a crucial time.

Sean Magennis [00:03:12] That is an excellent example. It’s extraordinarily practical. So what are some other ways to avoid failing to exit due to a decline of performance during the process to sell?

Greg Alexander [00:03:25] Next after backlog, I recommend turning your attention to the sales pipeline. I suggest a sales pipeline of five to one. For instance, let us say that you’re a 12 month projections for new businesses, 10 million. This suggests having visibility on 50 million in new work before the process to sell your firm begins. A five to one project pipeline provides enough coverage to hit the target.

Sean Magennis [00:03:54] Boy, that’s a good one. And it seems reasonable as a five to one pipeline ratio suggests a 20 percent close rate, which is conservative. How about some other advice for our listeners, Greg, on this issue?

Greg Alexander [00:04:07] Here’s an idea I have seen work brilliantly, but for some reason it is not often implemented. The idea is to split the business development team in two. Team one is committed to bringing in new business. Team two is committed to selling the firm. This addresses a common, overlooked mistake, which is underestimating the work required to sell the firm. For instance, owners of a firm are typically rainmaker’s. They bring in a lot of new business when their time is consumed with selling the firm. They’re not bringing in new clients. The revenue takes a hit and the exit falls apart by dividing up the workload. This can be prevented. And before I get off my soapbox, let me share a few other tactical ideas. Bullet proof the forecast. Investors are buying the firm based on the future growth it will generate. They are very skeptical. And we’ll put your forecast under the bright lights. Lastly, it’s a good idea. Think about transaction preparedness. Firm leaders will be asked to perform work. They have never done before. For example, you’ll be asked to prepare materials such as an information memorandum and many others. Get your hands on a few examples. Well, ahead of trying to exit and give yourself enough time to practice before trying to exit. This will shorten the time it takes to go to market and will result in a shorter sales process.

Sean Magennis [00:05:42] Fantastic, Greg. So split the BD team in two, bullet proof the forecast, and practice transaction preparedness. These are items our listeners can get to work on immediately. Thank you, Greg.

Sean Magennis [00:06:01] And now a word from our sponsor. Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow scale and someday sell their firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.

Frank Digioia [00:06:26] My name is Frank Digioia and I am the CEO and owner of the Fort Group. At the Fort Group, we offer a wide range of marketing services and solutions across many industries to help solve marketing challenges for clients navigating a marketplace that’s in transition. By that, I mean marketing in the middle of a monumental digital transformation. These clients look to us for various marketing services, including strategy, channel and sales, promotion, digital, as well as the creative needs. We solve these challenges by partnering with our clients and working hard to find the right solutions with the right resources. If you need help with these marketing services, feel free to reach out to me at [email protected]

Sean Magennis [00:07:05] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit the Collective54.com.

Sean Magennis [00:07:23] Okay, this takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her firm, our preferred tool as a checklist. And our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions in this instance, if you answer yes to eight or more of these questions, you can sustain performance during the process to sell your firm. If you answer no too many times, you’re likely to blow your opportunity to exit. Let’s begin.

Sean Magennis [00:08:02] Number one, do you have enough backlog prior to launching the process to exit? Number two, do you have enough pipeline prior to launching the process to exit? Number three, can the new business team stay focused on bringing in clients during the exit process? Number four, can the owners work be delegated to others during the exit process? Number five, is the forecast reliable? Number six, will the forecasts remain reliable during a time of great distraction? Number seven, have you provided enough deal support to the finance team? Number eight, can the finance team handle the constant requests for reports and information? Number nine, have you reviewed examples of the common documents used during transaction preparedness? And number ten, have you attempted a practice run in putting together these documents?

Sean Magennis [00:09:22] In summary, many exit attempts fail because the distraction of trying to exit causes a dip in revenue and profit performance. This should and must not happen to you, selling your firm is a big project lasting almost a full year. Get yourself ready ahead of time and be sure to time your attempt to exit correctly.

Sean Magennis [00:09:48] If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.

Episode 2: Seven Mistakes to Avoid When Selling Your Firm

There are 7 common mistakes made when trying to sell a professional services firm. Learn how this theory is proved and how to avoid making these mistakes.

In Episode 2 of The Boutique with CapitaL 54, the team pinpoints 7 common mistakes made when trying to sell a professional services firm. Learn how this theory is proved and how to avoid making these mistakes.

 

TRANSCRIPT

Various Speakers [00:00:01] You can avoid these landmines. It’s a buy versus build conversation. What’s the root cause of that mistake? Very moved by your story. Dive all in on the next chapter of your life.

Sean Magennis [00:00:15] Welcome to the Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow, scale, and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54, and your host. On this episode, I will make the case that there are seven common mistakes made when trying to sell a professional services firm. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54′ s chief investment officer. We can all learn a lot from Greg as he has seen dozens of firms trying to sell their business every year. Selling your boutique is a high risk, high reward initiative. I’d like to spend some time on the common mistakes made when selling. My hope is that by listening to this, you can avoid these landmines. Every situation is different. However, these are the most commonly made mistakes. Mistake number one is boutique owners are unclear as to what they want from the sale. Greg, why do you think this mistake keeps happening? 

 

 

Greg Alexander [00:01:38] That’s a great one and it is appropriately listed as number one because if you get this wrong, the impact is great. On a previous episode, I think it was titled The Difference Between a Happy in an Unhappy Exit. Now, I encourage the audience to look at that and listen to that. I went into detail on how to understand why you’re selling and I really encourage everybody to check that out because it’s, it’s foundational. But to summarize here, if you’re unsure of who you are, you will be unhappy with the sale. If you don’t know where you are headed, you will be unhappy with your sale. There’s no amount of money that will change us. I’m speaking from personal experience and I’m also speaking on behalf of those who I’ve helped sell their firms after the sale is complete, there’s no going back. So be sure that you know what you were doing before you go down this path. 

Sean Magennis [00:02:31] Powerful, powerful number one message. So mistake number two is sometimes boutique owners try to sell an unsellable business. Greg, it appears that that comes up a lot. Why is that? 

Greg Alexander [00:02:46] You know, most boutiques really are unsellable. It’s not enough to have a successful boutique. Your firm needs to be attractive to a buyer and that requires you to look at your business as an investor would, not as an operator. The investor starts by listing all the reasons not to buy your business, and the owner starts with a list of all the reasons to do a deal and this gap often cannot be closed. So prior to selling, be sure that you have something worth buying a lot more this and in coming subsequent episodes of this show but before you take your business out to sell, make sure it’s somebody might want to buy it. 

Sean Magennis [00:03:30] Outstanding. Greg, so mistake number three, it takes years potentially to sell a boutique. Yet some owners try to sell their firm in a matter of months. You and I have seen this. This results in many failed attempts or worse, a lot of forced sales. Why does this happen, Greg? 

Greg Alexander [00:03:51] Well, the process to actually conduct a transaction somewhere between six and 12 months. I’d say most often around nine months. It’s about how long it took me to sell my firm. However, the process of preparing to sell can take two to three years and you want to take your time preparing to sell because you want to exit on your terms. It takes time to stack the deck in your favor and as they say, you only have one chance to make a first impression. So it’s best to be ready, so don’t force it. Understand what investors are looking for. Give yourself time to make sure that your business has all the attributes that would make it attractive to a potential buyer and that’s going to take two or three years to get ready and then the actual transaction itself might take around nine months. 

Sean Magennis [00:04:40] So factor in your nine-month plan and make sure that you truly are ready to sell. Let’s pivot to mistake number four. A man is boutique owners under-invest in succession planning. What are the consequences of underage investing in succession planning, Greg? 

Greg Alexander [00:04:58] The big one is seller’s regret. After you sell, you’re going to want to see your boutique do well without you. You’re going to have many employees you care about who are still employed by the firm. If you hand over your baby to a stranger, they may destroy it. A big bank balance does not compensate you enough for this tragedy. I would recommend spending years grooming your successor and make sure that they build on what you have created when you sell your firm it should be a great moment in your life, you don’t want to have any seller’s regret and seller’s regret will show up with after you leave if within a year or two you don’t even recognize the firm and people that you care about have been mistreated. So be sure that you really know what you’re getting into before you sell it. 

Sean Magennis [00:05:49] Excellent point Greg, and I’ve seen you live that in your own career very powerfully with your successor. Mistake number five. This is where entrepreneurs think that they can sell a business on their own. This results in tactical execution errors that can cost the owner millions. What’s the root cause of that mistake? 

Greg Alexander [00:06:12] Yeah, I for the life of me, I can’t understand why anybody would want to do this, but it happens all the time and I think the root cause here is that most boutique owners are entrepreneur founders, and that means they are very different from hired gun CEOs. Founders as a group have a high-risk tolerance level and they are supremely confident in their own abilities. They approach the selling of their business is just another problem to solve, or maybe just another sales campaign, and they assume that they can figure it out. This is a big mistake and this is not an area to go cheap. Hire the best advisor, advisors that money can buy. Investment bankers, attorneys, accountants and let these advisors guide you through the process. This is where you truly get what you pay for. 

Sean Magennis [00:07:05] It makes a lot of sense. So mistake number six. This is where boutique owners often get attacked after the sale and they take it very personally. This may cause and does cause sellers regret. What’s behind this aspect, Greg? 

Greg Alexander [00:07:23] Human nature. I mean, yeah, you know, those that you are leaving behind are going to be jealous. They’re going to feel that that they were cheated and underappreciated and sometimes I see they begin to tell a story that’s not based, in fact. Rather, they tell themselves a story that they need to tell and make themselves look good and feel good. And when this happens, I’ll tell you, if you’re somebody listening and you think this isn’t going to happen to you, it is. Don’t take it personally. This is just business. You’ve created the wealth and therefore you’re the one to realize it. Don’t apologize for that. Those who helped you along the way have benefited and they’re going to continue to benefit. Rest your head peacefully on the pillow at night. All that matters is what you see in the mirror. 

Sean Magennis [00:08:14] Beautifully said, Greg. So mistake number seven is to be sure to understand who the business is being sold to and what their motives and motivation are. Why is this aspect important? 

Greg Alexander [00:08:30] Yeah, this is we’re selling a services business is very different than selling a product business. So a professional services business would fall into that category and this is really important, particularly if you’re on an earn-out or you’re rolling some equity. So those that are listening that might not understand those terms and earn-out says that you agree to a purchase price and that the proceeds come to you over time based on hitting some milestones or rolling some equity refers to that you sell a portion of your business, not all of your business, and you roll, quote-unquote, roll your equity into the New Deal with the intent of selling the rest of it or another portion of it down the road. So if you fall into those two categories, which the majority will one or the other or both. Who you’re selling the business to is really important because you have proceeds yet to come. So be really sure that you know what the terms are, that there are no unwanted surprises that crop up. You know, the buyers own the asset. Once you sell it, they’re entitled to do whatever they want with it. If you don’t agree with their plans, do not sell to them.

Sean Magennis [00:09:46] We will be right back after a word from our sponsor. Now, let’s turn the spotlight on collective 54 members who are making an impact in the professional services field, Collective 54 is the only national peer advisory network for owners of professional services firms who are focused exclusively on growing, scaling, and maximizing business valuation. Today, we have the pleasure of introducing you to someone I’ve known for many years. Renzi Stone, founder, and CEO of Saxum, an integrated marketing communication consulting agency. 

Renzi Stone [00:10:27] Saxum is an award-winning 50 person integrated digital marketing and communication agency. I founded the company in 2003 to take on issues that are shaping lives, our communities, and the world. We’re obsessed for good, which means that we move mountains for our clients, tackling their most important issues. We are experts in energy and infrastructure, champions of social good, and passionately at work, helping disruptive innovators build better communities. Saxum as a proud nine-time Inc five thousand honoree. As a CEO and a leader, I endeavor to always add value with purpose. The world needs more of that. 

Sean Magennis [00:11:13] Please get to know Renzi and other extraordinary business owners who are leading innovation in the professional services industry. Visit us at Collective54.com. Learn more about how Collective 54 can help you accelerate your success. 

Sean Magennis [00:11:34] So critically important to understand who you’re selling to and what their motivations are. There are other mistakes to avoid as well. Every situation that you as a listener and boutique owner are going to face is different. However, these are the most common mistakes that boutique owners make. In an effort to provide immediate takeaway value for the audience, I prepared a 10 question, yes, no checklist. 

Greg Alexander [00:12:01] You and your 10 no questions. Yes, no questions.

Sean Magennis [00:12:05] You’re gonna love me for these. Listeners, ask yourself these 10 questions. If you answer yes to eight or more of these, you’ll avoid making these mistakes. 

Sean Magennis [00:12:15] Number one, do you know what you want from the sale? Number two, do you know what you are going to do after the sale? Number three, is your business attractive to a buyer? Number four, do you, in fact, have a sellable boutique? Number five, do you have a hand-picked successor? Number six, is the successor ready now to take over? Number seven, have you lined up an all-star team of advisers to help you? Number eight, are you prepared for the post-sale criticism headed your way? Number nine, you understand who you are selling your boutique to. And number 10, do you understand truly their motives for buying? 

Sean Magennis [00:13:35] Greg, it’s been great to speak to you, for, for our listeners. If you are building a business, you could run forever. You are also building a business you could sell tomorrow. If you decide to sell, you want to do so on your terms. Give yourself plenty of time to avoid these common mistakes that we’ve shared with you on this episode. 

Sean Magennis [00:14:00] If you enjoyed the show and want to learn more, please pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you, Greg, and thank you to our listeners for being with us.