Chapter One:
The Human Element

When I conducted the interviews that are the source information of this book, one thing came through time and time again: the human element is significantly underestimated. Entrepreneurs, the heroes of the 21st century, are accustomed to being masters of their universe. They’re command-oriented individuals; they’re used to being in charge. They’re comfortable with making decisions. It never enters their mind that the human element in the sale of the business is what’s most likely to derail their success – which I define as maximizing the net present value (NPV), after taxes, of cash flows received. Here are some of the very human traps you might encounter when selling your business.

In order for Luke to succeed where many others before him have failed, he will need to mitigate against the natural risks posed by working with real people whose minds could change at any time. He must be aware that every decision he makes has an impact on all involved, buyers and sellers. His future buyer, for example, might need careful guidance and encouragement as he sees the deal through. Or what if his team starts to lose faith in the deal, and he has to reassure and motivate them without causing friction? The human element should be central to his planning because businesses are their people.

Unknown Unknowns

It is important that you, the owner, recognize that you don’t know what you don’t know. Using the term made famous by Donald Rumsfeld, these “unknown unknowns” may be lying in wait whether you’re aware or not.

Successfully running a business typically results in confidence. Confidence can be important for continued success, but sometimes we allow repeated success in one field of life to make us overconfident when we’re handling situations that do not lie within our day-to-day expertise. In an example of this halo effect, we believe that because we perform well in one certain area, we will automatically perform well inany area. A commonly cited example: Doctors that become pilots who, with an overconfident assessment of their skills, steer their aircraft expertly into the ground. In short, this overconfidence prevents highly qualified people from getting the advice or the information they need to optimize their outcome in an unfamiliar endeavor.

Unfortunately, when it comes to selling your business, there’s no mulligan, no redo. It’s going to be hard to unravel mistakes once the Letter of Intent (LOI) is signed. (We’ll describe LOI’s and Term Sheets in greater detail in chapter four.) This book attempts to address any gaps in your knowledge that may cause you to suffer regret later.