The first installment of my new series on selling your business focuses on “finding your why”, a key first step taken long before ever speaking to potential buyers.
By Michael Contento, F12 Managing Partner, Corporate Development, M&A
I’ve been an entrepreneur my whole life. I started a landscaping business at the age of seventeen with absolutely no knowledge of landscaping. In my early twenties, I founded my MSP, My Blue Umbrella (MBU), which was acquired by F12 in 2021. Even as a little kid, I knew how to hustle my siblings for the remote control. From a fairly young age, I was always looking at my exit plan. I had a “why” for every decision I made.
Succession planning: two steps to finding your why when selling your business
Yes, succession planning is about developing a plan for your company to continue on after you’re gone: retired, moved on to new opportunities, or have passed away. But there are a few key factors to consider when creating your succession plan. It’s not entirely about you and your personal plans, although of course, those are high priorities after you’ve spent years working hard on your company. You need to take into consideration all of the people who have entrusted you with their careers and who were paramount to the growth of your organization.
Step One: The personal side
If you’ve read my book, The Bottom Line, or read any of my articles, you’ll know my personal succession plan: spend the last ten to fifteen years of my life running a boutique vineyard in Italy with my wife. But I didn’t just wake up one morning, decide that, and move forward—I needed a plan to get there. First, decide on the lifestyle you want (vineyard in Italy, check). Then, bring in a personal financial planner to assess your situation. They will help you determine what it is you’ll need when you retire, whether that be next two years or twenty. Then, take that information and apply it to your business.
I knew I wanted to one day retire in Italy, so I’d have to join forces with a bigger MSP to continue to grow until I was at the magic multiple that my financial planner advised me on. That’s the personal side of finding your why in selling your business.
Step Two: The business side
Then you have to consider the succession plan for the company itself. You’ve got your personal why; let’s say you landed on early retirement. Great. But what does that mean for your business after you take your final bow? In his book Good to Great, Jim Collins studied companies that made the leap from being a good company to being a great one. In one of his case studies, he takes Lee Iacocca, long-time CEO of Chrysler, as an example. Iacocca turned a faltering Chrysler around and made it a success, but his succession plan was purely personal. He held onto the reins too long. When he finally did exit, he was set up for life—but his departure left the company struggling. He hadn’t created a solid foundation for his company’s succession plan.
At MBU, I constantly pushed for growth. As soon as I accomplished something, I quickly moved onto the next project. A decade ago, I had already started telling my team that this company was about more than me. More than us. My team always knew that we would one day move on to some kind of significant growth change, whether through acquiring or being acquired. I had no trouble finding my why for selling my business. But I wanted progression for my precious company, and stability and opportunity for my dedicated team. I brought in an accounting firm to audit my company and provide me with a valuation of what my company was worth.
The magic equation
It’s time to put the two sides together and do some M&A math. In my new role in M&A with F12, I now spend my time on the other side of the negotiation: the buying team. During a negotiation, I am most impressed when a business owner knows their “number”. Your number is the fair and reasonable price you place on your company when selling your business. But how does a business owner know if their number fits the succession plan? The magic equation: X + Y = Z.
X: Determine what you currently have as a personal net worth (assets minus liabilities).
Y: With the help of your professional audit, determine what your business is currently worth (the valuation) and can sell for.
Z: This is the pre-determined amount of money you need to achieve your personal goals (Italian vineyard, per favore), identified with the help of your personal financial planner.
The sum of both X and Y should be equal or greater to Z. If it’s less than the amount you need for that boutique vineyard (or that house in the Cayman’s, or the capital for your next business), then you need to re-evaluate. Maybe it’s not the right time to sell your business.
Michael’s “Finding Your Why When Selling Your Business” math:
X (how much I currently have in assets across the board, from properties to investments) + Y (the findings from my own proactive business evaluation) = Z (how much I’d need, as a husband and father of three children, to retire one day to the Italian countryside).
Obviously, the math is not quite as cut and dry as this. But these are the steps I took to evaluate my joining the F12 team. I made sure that I knew exactly what I was doing and why. So if you’re interested in finding your why and selling your business, contact me today. F12 is always looking for strategic growth partners who know what they want. What’s your why?