The Components of a Deal, Part 2: Preparing Your Purpose for Sale

In my last article, I talked about the difference between the market value and the relational value of selling your business. In this article, we will look at how to balance market and relational value, and how that balance changes with different types of buyers.

The temptation in selling your business is to keep things on the surface, in the market value. There you can show the best, while the worst stays hidden below. This is probably how you made your business the way it is in first place. You focused on the positive and worked hard to make it come true.

As practical as it might seem to focus on the market value, that won’t protect the relational value through the examination that lies ahead. You need to rely on something that is deeper and more personal than anything you can point to on a balance sheet or in daily operations.

The Foundation of a Successful Sale

To sell the market value of your business without losing its relational value, you need a clear purpose for your business.

Don’t get me wrong. I’m not suggesting you don’t have a purpose now. I’m sure you do. Otherwise, you would have never survived to get to this point. But while we’re building a business, we rarely have time to think about what that purpose is, let alone state it in a way that is clear to others.

Doug Meyer has already written a lot about individual purpose in his excellent post.  I’d like to look at the multiple purposes that are at work in your business that must come together for you to have a successful sale.

Defining Your Purpose

There are several purposes that each business must have to be successful. These all operate at different layers and become your focus at different times. You must make money and provide meaningful employment. And you must answer the question of the good you are creating for your community, industry, and family.

You have been defining these purposes with every decision you make. But you have probably not stepped back to assess how these smaller purposes point to your larger purpose. That’s because, while you are in charge, you don’t need to.

You have almost certainly had to keep multiple purposes working together, such as remaining profitable while giving family and friends a chance to learn and grow. That has been your special contribution and has placed you at the center of the relational web that makes your business what it is.

But once a potential buyer comes into the picture, they will start assessing your business by their purpose. They need to know if what you have built will work for what they are trying to accomplish. And this must happen with you out of the picture, since their ownership will replace yours.

How Buyers View Your Purpose

Depending on who your buyer is, that purpose will be defined in different ways. How that purpose is defined will affect the balance between the relational and market value of your business.

• If you are selling to an outside PE fund, that purpose will likely be defined in objective, short-term value. There’s a possibility they will take the pieces and people they want, and dispose of the rest. Once you have transitioned what they want, your input is no longer valued, so while your market value might be higher, the relational value will be low.

• Selling to another company means you must fit within their stated purpose. That will include objective value, but also the subjective value of industry and community reputation. This becomes a complicated balance between value and legacy, and who you are after the sale may come into the picture. Here the market value and relational value might be more in balance.

• Selling to an employee or family member places your legacy in the forefront. Your relationship to them is part of the value, and your stake in their success will go beyond a financial payout. Here the relational value is highest, and the market value comes second.

All of these options are legitimate, and where you land on this continuum will be defined by your purpose. Your business will sell for some combination of its market value, and its relational value. And your purpose will determine when that balance is right for you.

Remember, your business is for sale, but your purpose isn’t. Your purpose goes with you, and will become your focus in your new life after the sale.

Business Redeemed: Align Your Plan With Your Purpose

At MLA, we believe your purpose for your business is central to every decision you make for your business. As a result, we’ve placed what it would look like to fulfill your purpose, what we call your Dream, at the center of our Business Redeemed process.

Nowhere is this truer than when selling your business.

The better you understand your purpose while you’re building your business, the better you will be able to protect that purpose during the sale of your business.

It’s never too early to start asking these questions. We would be honored to help you determine how clearly you understand your purpose and work with you to align your plan with your purpose, whatever that purpose may be.

Read Part #1 HERE