Successful business owners are missing out on getting the full value from their companies by failing to prepare holistically when they sell, according to a report from Rothstein Kass.

Many successful business owners are disappointed by the process when it comes to selling the entities they have built up, the report found. In fact over half the ex-business owners surveyed weren’t satisfied, despite the fact that the majority (around 70 per cent) were either satisfied or highly satisfied with the price they received.

“Failure to fully comprehend the nuances of the process is one of the reasons we only see a relatively small percentage of highly satisfied owners happy with the wealth generated from the terms of the sale,” said Kashif Hussain, a principal in the Beverly Hills office of Rothstein Kass.

One factor linked with satisfaction was pre-exit corporate planning – a process which “may take a few years” if done properly, said Sylvie Gadant, principal-in-charge of Rothstein Kass’ transaction advisory services practice. 

What’s more, such planning needs to take into account personal considerations, such as mental preparation for the sale and agreement on a post-sale role, and corporate needs, such as locking in key employees and getting the balance sheet/financial house in order. It needs to go beyond debating over price, the report says.

On the other hand, being unfamiliar with the sales process is linked with dissatisfaction. For example, around 90 per cent of the business owners were surprised by how long the sale took. This is linked to the economic climate, in which buyers and sellers often differ in their views about what assets are worth, and which is prolonging the sales process, said Hussain.

“Our statistics suggest that the environment for selling a business has improved since 2009. Still, we haven’t seen a return to the same level of market activity found in 2007 and 2008,” he said.

Another factor contributing to disappointment was when business owners’ advisor teams weren’t well coordinated.

“This is easily preventable with a due diligence process of the wealth management group beforehand, and underscores the need for an integrated approach to financial planning,” said Rick Flynn, principal and head of the family office group at Rothstein Kass.

Rothstein Kass advocates having a designated advisor acting as a “quarterback”, who keeps the client in the loop about developments and coordinates the team. Also, some business owners felt “pushed” to sell by advisors – who were motivated by their own interests – so having an advisor whose compensation is not affected by this could help.

The sample group

For the report, Rothstein Kass interviewed 116 business owners who sold businesses between 2007 and 2011. More than half of the companies were sold for between $10 million and $25 million; around a third were sold for between $25 million and $50 million, and the rest went for between $50 million and $100 million.