Andrew Sherman – Mistakes to Avoid When Selling Your Business

Andrew Sherman is a partner in the corporate department of Seyfarth Shaw LLP, and serves as the corporate office chair for the Washington DC team. He focuses his practice on issues affecting business growth for companies at all stages, including developing strategies for licensing and leveraging intellectual property and technology assets, intellectual asset management and harvesting, and international corporate transactional and franchising matters. He has served as a legal and strategic advisor to dozens of Fortune 500 companies and hundreds of emerging growth companies. He has represented US and inter-national clients from early stage, rapidly growing start-ups, to closely held franchisors and middle-market companies, to multibillion-dollar international conglomerates. He also counsels on issues such as franchising, licensing, joint ventures, strategic alliances, capital formation, distribution channels, technology development, and mergers and acquisitions. Andrew has written nearly 30 books on the legal and strategic aspects of business growth, franchising, capital formation, and the leveraging of intellectual property, most of which can be found via his author page at Amazon. He also has published many articles on similar topics and is a frequent keynote speaker at business conferences, seminars, and webinars. He has appeared as a guest commentator on CNN, NPR, and CBS News Radio, among others, and has been interviewed on legal topics by The Wall Street Journal, USA Today, Forbes, US News & World Report, and other publications. Andrew serves as an adjunct professor in the MBA programs at the University of Maryland and Georgetown University law school and is a multiple recipient of the University of Maryland at College Park’s Allen J. Krowe Award for Teaching Excellence.   “Things happen when people sell their business, closely held companies, entrepreneurial companies – they run around and make a series of business decisions. Some of those decisions are actually diminutive of value or dilute of a value and accretive of value. But because you have chosen to surround yourself only with people that are like the Emperor’s village, and no one’s telling you, ‘Hey! This is a bad decision’ or ‘Hey! This decision could really affect the enterprise value if you were to go sell you are the Emperor’.” Andrew Sherman     Support our sponsor   Today’s episode is sponsored by the Women Building Wealth membership group, the complete proven step-by-step course to guide women from novice to competent investor. To learn more, visit: WomenBuildingWealth.net.     Worst investment ever This episode features a slightly different format  As Andrew Sherman has so much experience in the space of businesses, selling businesses and intellectual property and other types of property rights, our host thought it would be a great opportunity for his guest to go through some of the mistakes people have made in this arena that he has seen over the years. Enjoy! ‘Don’t call my baby ugly!’ or ‘DCMBU’ Andrew Sherman compares being in the park and seeing a mother with a baby in stroller and the social necessity of always having to say “Oh my God, what a beautiful baby”, with being the owner of a business and trying to sell it. Perhaps your “baby” is not attractive. Which doesn’t mean it may not be attractive in future or in the buyer’s arms but the first big mistake (1) a seller can make is to be overly defensive about their business. For many sellers, the business is their child, and they can have put more time into building that business than they have in raising their own family. Be ready for Spanish-inquisition-type scrutiny So if people are going to be selling their business, failing to be ready for the exposure and criticism that comes with putting their business up for sale is a huge mistake. He urges sellers to remember that due diligence in the post-Madoff, post-World Com era means that the depth and breadth of questioning the seller about all aspects the business for sale is extremely extensive. Andrew says it slows down transactions and makes them more expensive. Have checklists and humility about your ‘baby’s’ value Such scrutiny though can have a considerable psychological impact on sellers and the response can be defensiveness when people are questioning every business decision that they have made on every customer, channel, relationship, intellectual property action. He says: Be ready for this process. Have a data room, checklists and the right advisors, but also try to attain a mental state that admits not every buyer will think you have the most beautiful business in the world. “In fact, most buyers and buyers counsel and their advisors are trained and are paid to find the flaws in your business.” Andrew Sherman ENC syndrome Andrew spoke here about an issue similar to DMCBU, but one that is slightly different it speaks to leadership, governance and culture. ENC stands for The Emperor’s New Clothes, from the Hans Christian Andersen children’s story of the same name. He likens the Emperor’s tailors (who make the invisible suit) to consultants. The scariest part of the story is that no one in the village points out that the Emperor is not wearing anything until a child tugs on their father’s jacket coat and says loudly: “Daddy, why is the Emperor walking around with no clothes”. Business sellers need team members to be honest Things happen and people sell their business, closely held companies entrepreneurial companies, they run around and make a series of business decisions. Some of those decisions are actually diminish or dilute the company’s value, and do not create or add value. But some business owners because you have chosen to surround yourselves with yes men and no one’s telling them that a decision is bad and could affect their enterprise’s value, this is a big problem. Some owners only want to be told good news and good things about their business and how well everybody’s doing. This tendency will haunt a seller, because buyers, they’re lawyers, their accountants, their investment bankers, and their consultants are like the child, and they will state loudly something is a problem, Advisory boards can be a great form of due diligence Not only that, this it will go on to affect enterprise value and the price and the terms paid. One thing a lot of companies do not do is set up advisory boards to help prepare a seller, and play the part of the tugging on your...