Freedom or Money: Which is more important to you?
April 1st, 2010
I had been promising myself that this article needed to be written before another day passed. To put it in perspective, you must understand the simple reality check I routinely perform when I first meet with business partners, husbands and wives, or single owners of a business. It is fun for me to perform a visual analogy where I hold up my two hands parallel to one another and perpendicular to my chest.
I explain that the right hand is the “money” hand and the left hand is the “freedom” hand. The “freedom” hand signifies that the primary reason for selling the business is to obtain freedom so that other priorities can be pursued or handled. I always ask my prospects where they fall on the spectrum between money and freedom.
Examples of preferring freedom to money might be that one of the owners has a health problem, or that there are aging parents to look after. Another common reason for freedom is simple burnout. Whenever a person has worked 15 to 20 years at the same business, they simply get tired and need a change.
You might be surprised to know that 95% of the time my prospects indicate that freedom is more important than money. But what about the other 5%? Why do they say money is of greater importance? Possible reasons include: I owe the bank x dollars; I owe relatives x dollars; I owe myself x dollars; I have put blood, sweat and tears into this business and want to get paid for it; I want to get back every dollar I put into the business, etc.
I explain to my clients that I am willing to list their businesses for whatever price they desire, but there are risks to consider. Everyone understands the expression “I don’t want to leave money on the table” by pricing the business too low, but not everyone understands the danger of overpricing a business and scaring off bonafide prospects who might have bought the business had it been priced correctly.
Given today’s economic environment, I now need an extra hand. Most business owners in their late 50’s and early 60’s thought they would be able to retire and live off of interest, dividends, pensions and social security. But, when their personal fortunes plummeted by 40% to 50%, all bets were off. Now I am hearing people tell me that they prefer freedom to money, but they must sell their business for enough money to be able to live freely.
So the selling strategy must be somewhat altered. A listing price must be adequate to meet the owner’s financial needs so that they can be free to live their lives comfortably. If they cannot sell the business for the correct amount, they will have to accept that they may not be able to retire and may have to continue owning the business and working in it whether they want to or not.
I would like to make another observation about setting an initial asking price too high. Contrary to what you might think, a buyer will not make an offer, even a low-ball offer, if he or she feels the price is unreasonable. They will simply continue looking until they find something they feel is priced more reasonably. Then several months into the listing, the owners will lower the price and tell me that freedom is looking a whole lot more important than it did at first. So they will ask me to contact anyone I spoke with previously when the listing was over-priced. When I do as requested, two equally bad things may take place. Either the potential buyer has found something else and is no longer interested – or worse yet, they now think there is something wrong with the listing since we are now chasing them instead of the other way around.
In conclusion, you need to do a great deal of soul searching before deciding whether now is the right time to sell your business – and if so, at what price. Our firm will be happy to meet with you to discuss your options.
Author’s note. After helping sellers and buyers for more than 20 years, I have found that honesty, integrity, full disclosure, patience and a willingness to consider various alternatives makes the probability of success for all parties very high.
I had been promising myself that this article needed to be written before another day passed. To put it in perspective, you must understand the simple reality check I routinely perform when I first meet with business partners, husbands and wives, or single owners of a business. It is fun for me to perform a visual analogy where I hold up my two hands parallel to one another and perpendicular to my chest.
I explain that the right hand is the “money” hand and the left hand is the “freedom” hand. The “freedom” hand signifies that the primary reason for selling the business is to obtain freedom so that other priorities can be pursued or handled. I always ask my prospects where they fall on the spectrum between money and freedom.
Examples of preferring freedom to money might be that one of the owners has a health problem, or that there are aging parents to look after. Another common reason for freedom is simple burnout. Whenever a person has worked 15 to 20 years at the same business, they simply get tired and need a change.
You might be surprised to know that 95% of the time my prospects indicate that freedom is more important than money. But what about the other 5%? Why do they say money is of greater importance? Possible reasons include: I owe the bank x dollars; I owe relatives x dollars; I owe myself x dollars; I have put blood, sweat and tears into this business and want to get paid for it; I want to get back every dollar I put into the business, etc.
I explain to my clients that I am willing to list their businesses for whatever price they desire, but there are risks to consider. Everyone understands the expression “I don’t want to leave money on the table” by pricing the business too low, but not everyone understands the danger of overpricing a business and scaring off bonafide prospects who might have bought the business had it been priced correctly.
Given today’s economic environment, I now need an extra hand. Most business owners in their late 50’s and early 60’s thought they would be able to retire and live off of interest, dividends, pensions and social security. But, when their personal fortunes plummeted by 40% to 50%, all bets were off. Now I am hearing people tell me that they prefer freedom to money, but they must sell their business for enough money to be able to live freely.
So the selling strategy must be somewhat altered. A listing price must be adequate to meet the owner’s financial needs so that they can be free to live their lives comfortably. If they cannot sell the business for the correct amount, they will have to accept that they may not be able to retire and may have to continue owning the business and working in it whether they want to or not.
I would like to make another observation about setting an initial asking price too high. Contrary to what you might think, a buyer will not make an offer, even a low-ball offer, if he or she feels the price is unreasonable. They will simply continue looking until they find something they feel is priced more reasonably. Then several months into the listing, the owners will lower the price and tell me that freedom is looking a whole lot more important than it did at first. So they will ask me to contact anyone I spoke with previously when the listing was over-priced. When I do as requested, two equally bad things may take place. Either the potential buyer has found something else and is no longer interested – or worse yet, they now think there is something wrong with the listing since we are now chasing them instead of the other way around.
In conclusion, you need to do a great deal of soul searching before deciding whether now is the right time to sell your business – and if so, at what price. Our firm will be happy to meet with you to discuss your options.
Author’s note. After helping sellers and buyers for more than 20 years, I have found that honesty, integrity, full disclosure, patience and a willingness to consider various alternatives makes the probability of success for all parties very high.
