You've worked hard to build a successful business and now you are selling and in discussions with a buyer. If you are like many business owners you are proud of what you have accomplished but also recognize how much work it required to build your business. Along the way you've learned tips and tricks that have helped you to be more efficient and effective in your key management role. Perhaps the buyer has suggested that they would like you to consider staying on as a paid executive for the first 1-2 years after the sale has been completed. Many people in this situation may be tempted to convey how important they are to the operation of the business because they'd like the buyer to pay a premium salary for the executive's transition role in the business. The inclination may be to say something like, "I've been the key person doing R&D and nobody else in the organization is truly ready to replace me, yet. Because I know the ins and outs of the business if you were to replace me it would likely require 1.5-2 staff members."
Don't say that!!
Don't get me wrong - I'm not suggesting that you lie if, in fact, you do work 80+ hours a week, have highly specialized knowledge, and are twice as productive as most other executives. Just don't exaggerate in the hope of a higher paycheck. Many business owners play some roles in their company that could be delegated, and spend some of their work week devoted to more personal projects. Often executives also underestimate the number of people with strong relevant experience out there who could be hired who are equally, or more, efficient and effective. The problem with selling how important you are to the operation of the business is that a business buyer may have second thoughts about whether they can successfully operate the business without you, whether they will be able to find an eventual replacement for you, and if they will need to significantly increase the budget for replacement staff which increases their projected expenses and thus, lowers profitability and value.
Maybe exaggerating your importance helps you negotiate a higher pay rate for a 1-2 year transition, but what does this mean for the valuation of your business? If the market rate for your position is $150,000, but a buyer believes that they will have to hire two $125,000 employees to replace you, that means they will have at least $100,000 in greater expenses and lower profits. That additional $100,000 profit, if included in valuation calculations, may mean a difference in value of $400,000 - $800,000 in business value.
Comments