When I talk with owners interested in either buying or selling a business, they regularly think this is a transaction; each party views it from the point of view of either buyer or seller.
Since both view it as a transaction, each party has a list of what s/he wants to achieve through the transaction. Each has both non-negotiables and “nice to haves” on that list. Non-negotiables may be anything from the price to pay-out terms to whether this is an asset or stock deal. Because this is transactional it is easy to feel the gravitational pull toward it becoming adversarial.
Suppose we consider this transaction from a 3rd point of view: that of the business itself! What if the buyer or sell were to consider the needs of the business as if it were a person?
While this may seem absurd, remember that by law a corporation is considered a person. If you consider recent Supreme Court rulings, the reality of personhood might become clearer. NPR journalist Nina Totenberg notes that
…in the past four years, the high court has dramatically expanded corporate rights.
It ruled that corporations have the right to spend money in candidate elections, and that some for-profit corporations may, on religious grounds, refuse to comply with a federal mandate to cover birth control in their employee health plans. (1)
What, then, might be the business’ non-negotiables in the process? What the business needs is for both buyer and seller to win. If both do not win, the business will be caught in the middle and, inevitably, suffer from buyer-seller battles for self-aggrandizement rather than a process of joint collaboration to protect the business.
What the business wants and needs can become solid “common ground” upon which to build agreement between the buyer and seller. For starters, from the business’ point of view, they are not buyer and seller but Past Owner and New Owner.
What does the business want?
- Health: without sustainable growth—especially through the transition from Past to New Owner—the business will flounder and the agreement between Past Owner and New Owner may devolve into a seller-buyer gridlock. (See the Toolkit below to examine this idea further).
- Happy Owners: remember the 2008 U.S. men’s and women’s 400 meter relays? BOTH men and women’s failure to pass the baton kept them out of running for the Gold. Any glitch in the hand-off damages business “goodwill” with employees, customers, and other stakeholders. The business wins when both parties feel they’ve won.
a. Past Owner: the seller wants to feel that the years he spent in the business left a solid legacy to his clients and to his loved ones. He wants to feel that his Ownership mattered.
b. New Owner: the buyer wants to feel that he has a bright future and that he can take that business to the next level. He wants to feel that his Ownership is hope-filled.
Over the next two weeks, a guest blogger will elaborate on why this framework is so important for a particular kind of firm—the financial planning practice.
- What plans do you have in place to sustain the day-to-day operations of your firm? When you consider selling or buying a business, you’re taking on another full-time job!
- As an owner,
- What legacy you want to leave? OR
- What future do you envision for your firm?