Sell the Company, Not Yourself

Establishing rapport with the buyer is important for owner-entrepreneurs because without it, the buyer will probably decline to proceed. So, in some respects, it is just as important to sell yourself as it is to sell the company. But don’t confuse selling yourself with self-congratulation. Entrepreneurs who have experienced financial success sometimes feel compelled to make a case for why they are so valuable to the company. That is usually a mistake.

Of course, I am not suggesting that you should be dishonest or shade your answers. Simply be aware that you are negotiating with the buyer primarily in your capacity as owner rather than as an employee. When questioned about your significance to the company, don’t minimize your role in a way that you feel would be dishonest or misleading, but by all means, don’t enlarge your role simply because you feel defensive or seek glory for the moment.

No doubt it’s been years since you have had a performance evaluation review, and it may be tempting when you finally have an opportunity to pat yourself on the back. After all, you probably have not had the satisfaction of telling anyone other than your spouse how important you are to the company. But if you are more interested in selling your company than getting “atta boys,” you will resist the temptation and focus on the entire team that is responsible for the company’s success.

Having watched many owners respond to questions of prospective buyers, I can tell you that most owners are not even aware when they slip into describing their company as their alter ego. Peppering their responses with “my leadership,” “my customers,” “my vision,” and so forth often leads the prospective buyer to the conclusion that the owner has a healthy ego, a company without a separate identity, or perhaps both.

If you are, in fact, extremely valuable to the company, you must plan to stay on after the sale or have a good plan to train your replacement. Ideally, you should implement a management succession plan before undertaking a sale. Companies dependent upon an owner-entrepreneur are often discounted in the market, if they are sellable at all. Even if you promise to stay on, buyers are well aware that former entrepreneurs often do not fare well when they are not in control, and chances are you good that you will not be with the company beyond a year or so. If that is the case, the buyer will try to protect himself by paying a lower price or structuring the purchase with earnout provisions or with some recourse if you do not stay on for a sufficient period of time.

The second most important question for the buyer is, “What would you like your role to be after the sale?” (The most important question: “Why are you selling?”) They want to know whether you are willing to invest your time and energy to make the purchase a success. Thus, the more important you are to the success of the business, the more important it will be for you to commit to remaining with the company.

Owners who are replaceable and earnestly desire to remain after the sale sometimes feel it necessary to sell the buyer on their importance. They fail to realize, however, that in maximizing their value as an employee, they may be reducing the selling price of the company. Most companies are priced based on multiples of net income after payment of all expenses, including compensation to the owner/employee. The more valuable the owner/employee, the higher the compensation that will need to be paid to his replacement. This replacement compensation will be used to determine net income. If, for example, a 6 multiple is being used to value the company, every dollar of increase in compensation to the owner/employee will decrease the selling price by six dollars.

The buyer will probably not understand how other employees are instrumental to the success of the company unless you tell them. By doing so, you not only enhance your employees in the eyes of the buyer, but you also convey the message that your success is a team effort.

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