The Components of a Deal, Part 1: Market vs. Relational Value

Selling your business is an exciting prospect! It promises to shift the responsibility of your life’s work to someone else, while paying you back for your years of sacrifice and stress.

While most of the attention in a transaction will be on the market value of your business, in our experience, it is often the relational value that creates the most stress and can even prevent a deal from happening.

Understanding Relational Value

Selling a family business impacts everyone in the family, not just you. Whether you’re selling to an outside, strategic buyer, or someone already in the company, or passing ownership to others in your family, the process of selling will raise many issues you’ve not encountered before.

Family-owned SMBs are a web of relationships. In part, that’s what makes them strong and resilient and able to adapt to changing circumstances. You have lots of stories of what it took to get where you are, and the twists and turns along the way.

Your business has an objective value, meaning a value in the market, and Kate Vriner will be writing about that next month. But your business also has a subjective value, meaning a relational value to you and the people close to you. That value is much harder to quantify.

The market value will be calculated and documented in a legal sales contract. But the relational value will be felt by everyone who has a personal stake in that business, even if it’s through you or someone else.

While you might be the person behind the wheel, others have been along for the ride.

• You may have long-term employees who have been loyal and put in the extra effort.

• You may have kids who put up with the long days and the distraction of always having work on their minds.

• And you may have a spouse who has sacrificed and supported you when you were working through the darkest times.

Selling is a choice, and that choice comes with many other choices that you didn’t ask for or anticipate. Each choice you make will be interpreted differently by each of the people with you on the ride. You might decide to shield them from those consequences, but even if you do that for a while, the stress will affect you, and the outcome will impact how they see and relate to you.

On the surface, the decision to sell feels like a relief. But in our experience with the many businesses we’ve helped through this process, that hopefulness is quickly replaced by a new kind of stress that feels like it may do you in.

Regardless of the plan or price, you can’t keep that stress out of the relational web that makes up a family-owned business. It will start to seep into your most treasured times away from work. You might win on the market value, but what you lose on the relational value can leave you asking, “Was it worth it?”

Securing Relational Value

The stress of selling is inevitable. As Doug Meyer pointed out, this is a process, not an event. And it’s a process that most business owners have never been through.

This process will force to the surface the hopes, fears and assumptions you’ve carried as a business owner.

• Hope about what this sale will mean for your family who sacrificed so much.

• Fears about exposing your areas of weakness as a leader, and where you’ve had to make compromises or make do.

• Assumptions about how others would value what you’ve done, and what the process would be like.

These hopes, fears, and assumptions are what define the soft value, and they will come out through the sale. Seth Morgan, CEO of MLA Companies, often says, “Selling a business is as much an identity crisis as it is a financial transaction.”

An outside buyer is going to go through your business with a fine-tooth comb, looking to expose any weakness that means they can lower the hard value. An inside buyer is probably going to start changing things on day one. They already have a list of the things they think you should have done differently and will waste no time in stating what they are.

Either way, you are the one under the microscope. You were in charge, and the buck stopped with you. Whatever relational value you’ve created, it will be your flaws that are exposed. And that relational web which has made you successful and strong starts to feel like it could dissolve before your eyes.

After all, you are selling your business so you can do something else. Whatever that something else is, it represents the relational value because it impacts the people close to you. You might want to retire to spend time with your grandkids or launch another venture based on your credibility or expertise.

Whatever your motivation, the most important thing that must survive the sale of the market value of your business is its relational value to you. Your legacy and the relationships will matter most to you after the market value is settled.

So, how do you do that and come out with that relational value intact? And how does your relationship with the buyer affect your strategy for the sale of your business’s objective value?