This is a page from my book, “How I Sold My Business: A Personal Diary”
I was glad to see the people I wanted to see at the meeting this morning: All of the Class A and B partners, except for Jack.
The meeting began with the Class B partners signing the documents to reject my offer to sell. After that, what I wasn't glad to see was the the partners "offer" was totally unreasonable. Somewhere in their research they got the idea that the company was worth little more than "book value." Now I know these guys, and I know they don't know much about business finances yet, so I don't know where they got this idea, but they seemed very attached to it.
Discussing a "book value" offer
I sure didn't expect a low-ball offer like this, and I had to put it down in a big hurry. From the books I've read, and in discussions with my two lawyers, my understanding is that book value is "fire sale value", meaning that the business is about to burn down, and we're selling it for scrap. That would be like me saying "I'm leaving tomorrow, good luck," and that's not what I'm doing at all.
I explained this to everyone in the room, and even went in and printed off a high-level (summarized) version of our current P&L statement and Balance Sheet. I talked a great length about book value, and also showed them how it would vary dramatically when we took our next distribution. Book value, I reiterated, was what I'd be getting next April if I had taken the tact of not saying anything about leaving until then, and I just closed the doors on the business and walked away. It was not a reasonable offer at all at this time.
For the majority of the meeting I felt like I was back to Square One with these guys, and I wondered if they did this as some sort of negotiating tactic, out of naivete, or possibly something Jack told them. After this long discussion we were quickly running out of meeting time. Some of the partners had other obligations, and we'd have to re-convene another time.
I reiterated to the partners I was willing to negotiate and come down from my previous asking price, as promised, but book value was unreasonable. They would be "in the black" on the deal immediately, and that was no value to me at all.
As I thought about the phrase "terms of the agreement" I suddenly realized how far we were from a real agreement. We weren't even close on price, and we still hadn't talked about whether I'd get cash up front, a series of payouts, or something in between, and I hadn't yet told them about the "goodwill" part of the deal.
I left the meeting with the realization that if I wanted this to happen any time soon I was going to need to take the bull by the horns, and try to address most of their concerns. I'd take the rest of today and tomorrow to work up some spreadsheets showing exactly what I was looking for, and how they'd get paid back.
One other thing I learned: Several partners have vacations coming up in the next few weeks, myself included, that will slow down the sales process. I'm debating about taking my own vacation, but it's already paid for, and nearly overlaps with two of the partner's vacations, so at the moment I'm still planning to take it.