Every four years Americans go to the polls to elect a president. There is one issue that seems to come up during every election, and that is how each candidate would handle the “3:00AM wake-up call.” The question centers on how the candidate would handle a crisis so severe that they’d need to be awakened in the dead of night. Truth be told, many people make their decision for whom to vote based on how they feel about that question.
Business owners also have to be prepared for that momentous call. Though it probably won’t come in the dead of night, and likely won’t be an issue of international crisis, it might be a call that has an existential effect on the business. The call I’m describing is when your largest customer or competitor calls (or emails) to see if you’re interested in selling. Even if you have no interest in selling, the call will fuel your ego, to know somebody out there has you on their radar. Or, the call might scare you as you consider the impact of not selling; sometimes a spurned suitor can become your competitive nightmare.
But what if you’re inclined to entertain their expression of interest? What if you indeed want to sell and have been hoping you’d get a call like this? How you respond might impact your valuation by millions of dollars. First, you should express appreciation for their interest but insist they sign a confidentiality agreement before any detail is exchanged. And never ever, ever sign an NDA/confidentiality the potential buyer provides. It will not have the protection you need. Have your attorney draft an NDA that you then provide to the interested party. Once they have signed the NDA you have provided, you should give them a three-year summary of your financials: revenue, cost of goods sold, operating expenses, and before-tax profit. Listen to what I am about to tell you because it is the truth, yet no potential buyer will tell you this: the high-level information I just described is sufficient detail for the buyer to give you an “indication of interest,” meaning a 30,000 foot view of how they are thinking about valuation. Look, why bother to share any more detail about your business if you and the buyer are not generally seeing valuation the same way. An indication of interest is not binding, and in fact, the buyer might reduce their valuation after learning more. But the simple point is this, you don’t want to start down the road of information exchange without knowing you have a shot at the kind of valuation you want.
Do you need an advisor like me to help you through a process like this? Not if you’ve managed several business transitions as large as yours might be. Assuming that is not the case, call me or somebody like me. I can guarantee the fee you’ll pay for an advisor will be more than paid for in the incremental value we can create on your behalf.
There’s no way to know when your 3:00AM call will come in, but don’t be surprised when it does. Are you prepared?
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The principles above are true, but the story, names and fact patterns are changed to preserve the parties’ identities.
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