By Ameen Amin (’23SPS, Wealth Management)
Ameen Amin is a Senior Vice President at a global wealth management firm with a practice that focuses primarily on working with business owners and entrepreneurs. A recent graduate of the Wealth Management program at the Columbia University School of Professional Studies (SPS), Ameen currently serves as a course associate for the Wealth Management capstone course and is an avid enthusiast of the program.
Having had the privilege of working with numerous founders and CEOs as they look to transition their business and maximize the value of their life’s work, I wanted to put pen to paper on some of the things that I wish every business owner knew before embarking on what is typically a once-in-a-lifetime event.
Most of the business owners I work with can teach me more about life than I can ever teach them, but given my vantage point as a dedicated wealth manager, here is some of the advice I share with them regardless of the sector in which they operate.
1. There is more capital than good ideas.
Walking into any new situation can be daunting. Add to that the mystique of private equity, impressive résumés, and the potential to strike a deal that would impact multiple generations down the line, and one can see why business owners can feel it is the buyer who is doing them the favor. Yet the reality is there is much more capital looking for a home than there are good businesses. It is the business owner who has all the leverage, and that should not be forgotten.
2. Have it your way.
I am commonly asked, “How do I get the best deal?” While I am not a fan of answering a question with a question, my response is always, “What do you define as the best deal?” There are six to seven ways to transact, and the reality is that different paths make sense for different goals. Plenty of business owners got their initial push to build something of their own because they wanted to do things their way, and I see no reason that should not continue until the last day of ownership. Business owners ought to take the time to assess what it is they value the most (getting their time back, maximizing value, etc.), and a strategy can be built around that.
3. Build your bench.
Being a business owner is code for wearing seven hats despite having one head. It is not uncommon that the founder of the business is not just the CEO but also the unofficial COO, CFO, and everything in between. While that can be commendable at the early stages of a business’s life cycle, it isn’t when you’re letting a business go. A buyer of the business does not get rewarded for past performance and needs to lean on existing management to execute key strategic initiatives without being worried that the intellectual capital of the business will leave with the owner. Another interesting observation has been watching business owners build a strong management team only to change their minds about selling the business when they realize they can get their time back without having to change ownership. There is an art to building a business and an art to letting one go. Only a select few have mastered both.
4. Understand the value of running a process.
I do not know of a single midsize-business owner who has not been bombarded with solicitations from suitors ranging from corporate development folks to private equity funds. Having inbound messages in your mailbox might make the thought of hiring an investment banker seem unnecessary, but in my view, that is far from the truth. The reality is that top investment bankers pay for themselves and, more importantly, help find the delta between what a business is worth and what a buyer is willing to pay for it by creating a competitive process. Potentially having a handful of interested parties bidding on the business in a choreographed, tightly run sell-side process increases the likelihood of the price getting bid up, since nothing makes a buyer sharpen their pencil more than competition. More to the point, having many offers on the table gives business owners choice as to who they trust with their rolled equity, employees, and legacy. The key is to know what to look for in an investment banker for your unique business.
5. Plan for the next season before the next season.
From a financial point of view, the earlier one can plan for a liquidity event, the better. Thoughtful wealth transfer strategies need time to be put in place, and the more time one has, the more options are available. As great as it is to maximize value from a financial lens, business owners and advisors alike need to remember that an entrepreneur selling a business is selling not only an asset but also a piece of their identity. It is not uncommon for business owners to go through a mourning phase as they navigate a new season. Those who know that and plan ahead, thinking through how they will allocate their time, with whom, and why, are usually best-equipped to take on the next chapter.
Make no mistake: Most entrepreneurs are incredibly demanding clients who have high expectations and do not hand out their trust lightly. With that being said, nothing good comes easy, and if an advisor goes out of their way to support an entrepreneur and their business over a prolonged amount of time, that same entrepreneur will eventually go out of their way to do the same. That is something I can speak to from experience.
The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be appropriate for all investors, as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Investing involves risks, and there is always the potential of losing money when you invest. Individuals should seek advice based on their particular circumstances from an independent tax or legal advisor. The views expressed herein are those of the author.
Views and opinions expressed here are those of the authors and do not necessarily reflect the official position of Columbia School of Professional Studies or Columbia University.
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A 16-month online program with asynchronous instruction, specially designed to accommodate working professionals, Columbia University’s Master of Professional Studies in Wealth Management program is taught by distinguished faculty with deep, applied experience in their respective fields. Additionally, it is a CFP Board Registered Program designed to help students meet the educational requirements for CFP® certification.
