Navigating the Negotiation Table & Why Baby Boomers Need to Release Control
I have a client who I am consulting through the exit process (business valuation and negation assistance) as he sells his furniture business which he has owned since 1992. During our initial consultation, I always ask clients “What is going well?” and “What keeps you up night?”, “Where do you source your products?”, etc. In order to build a well-supported, defensible risk profile for a company and properly develop a discount rate to apply to the future cash flows of the business, I need to have a solid understanding of the business from both industry publications but I need to understand the day-to-day operations and nobody knows that information better than the owner. Listening to Larry passionately describe his business (albeit a curse word slipped out here and there), I could tell immediately that Larry has an incredible work ethic and reminds me of my father. Picking up on Larry’s love for his business, I asked him this series of questions.
“Larry, if you leave my office today and get hit by a MARTA bus, who is going to open the warehouse tomorrow?”
2. “Larry, who else has the passwords for those programs, the keys to the warehouse, and combination to the safe?”
3. “Larry, when is the last time you took a vacation? Where did you go and how long were you gone?”
Larry’s responses were…
“I guess Suzie could come get my keys at the hospital”
“Heck no… I’m not giving anybody my passwords. Are you crazy?!”
“I guess my late wife and I went to Florida a couple years ago right after the Olympics were here.”
Ugh….the Olympics came to Atlanta in 1996. Houston, we have a problem!
Baby boomers own over half of all privately held businesses in the United States. As boomers begin to retire and start selling their companies, many baby boomers find themselves struggling at the negotiation table. A key factor that contributes to this challenge is the difficulty in relinquishing control over their businesses. While their experience is invaluable, the resistance to adapt can lead to financial losses during negotiations. In this article, we will explore the reasons this tendency occurs and how it affects outcomes in business deals.
For baby boomers who have spent decades building their businesses, letting go of control can be a daunting prospect. This demographic often regards their businesses as extensions of themselves and may fear that sharing control could lead to unfavorable results. However, this mindset can hinder negotiation processes. Negotiating effectively often requires collaboration and open-mindedness—qualities that can be diminished by an overly controlling approach.
The average investor does not want to purchase a business that requires the business owner’s presence daily just to function; or any single person for that matter. That is termed “Key Person Risk” in the valuation industry. If the severe key person risk doesn’t immediately cause the investor to take a walk, it will certainly impact the amount in the owner’s pocket when he or she leaves the negotiation table.
Understanding that change can lead to growth is essential for navigating the current business climate. By acknowledging that control can be distributed without compromising their vision, they can open themselves up to more opportunities. When I am given the opportunity to work with clients 18-24 months out from an exit, we can develop a formalized succession plan transforming the 40-years of knowledge and leadership in one brain into layers of management and well-documented policies and procedures documents. This 18-month head start gives me time to mitigate these business risks, implement changes, and ensure the business that my client has poured their life into is sold in the market at a premium.
Are you considering selling your business soon? Let us help you through the process. Book a FREE 20-minute consultation today.
PS… Larry decided he wasn’t quite ready to retire after all. Good for you Larry! We are still working on handing over the reins.
Futher reading about key-person risk
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