Oct 23, 2023

136: Reasons Why Your Business Won’t Sell and What To Fix Now, Christine Nicholson

A majority of small businesses that intend to exit don’t actually sell. A big reason is owner-dependency. A business that can’t thrive without its owner will likely be less desirable to buyers.

Listen in as Succession Stories host Laurie Barkman, The Business Transition Sherpa, talks with Christine Nicholson, an award-winning business mentor in the UK. An expert on exit and succession planning in owner-managed businesses, Christine is the author of four books offering practical advice on running better businesses including her latest book, “SELL IT,” helping business owners get their business and themselves ready for the hardest part of the entrepreneurial journey, leaving their business in the hands of others. 

Enjoy this Succession Stories episode to learn why your business won’t sell and what you can fix now.

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Laurie Barkman
Christine Nicholson, Welcome to Succession Stories all the way from the UK. I’m so excited to talk with you.

Christine Nicholson
I’m really pleased to be here. Succession Stories is such a good title because people really need to hear this message.

Laurie Barkman
They really do. Sometimes it feels like a taboo, though, doesn’t it?

Christine Nicholson
Absolutely and if you think about it, the word succession is success plus a bit. I mean, most people start off their business to be a success in whatever they’re kind of thinking their terms of success. But you got to think of it as plus a bit and it’s plus a bit, that’s the real magic.

Laurie Barkman
That’s right and you reached out to me, which means, “Look, this is a global topic.” You’re in the UK, you’ve been working in this industry for a long time. Why don’t we start with you–tell me about your story.

Christine Nicholson
It can be a long one. I’m going to give you the potted version because there isn’t an industry that I haven’t worked in. I left school at 16 with absolutely no expectations of anything other than working in a shop. I realized that actually could do anything and so I joined the military where I did three soul-sucking years in banking, which if anything’s going to destroy the spirit of anything, it’s going to be banking. Unless that’s your special superpower but it wasn’t mine.

I joined the military and I was going to be in for life. Sadly, having joined the Navy, I realized I had really chronic seasickness. I had to think of what was plan B. I knew a professional qualification was the route to that. By nefarious means, I qualified as an accountant, and the whole time I was qualifying, I just realized that in the same way that I wasn’t suited to banking–I probably wasn’t suited to accounting either. It kind of opened up every aspect of business is exposed to accounting.

I was very lucky when I first qualified that I got this great job with a family-owned company, but the next generation wasn’t interested. They literally spent the whole five years I was there, bundling up this massive bunch of companies that have all had common ownership into exit packages. That’s where I got my teeth on. It was like the greatest apprenticeship in exiting and succession planning. I left that to start my own business and I started multiple businesses. I was very lucky all of them were reasonably successful.

When I sold my last business. My husband at the time, got a job out in the Middle East, so I thought, it’s time to put my feet up. Not really thinking that putting my feet up was going to last about 15 minutes to 20 minutes. While I was in the Middle East, I ended up accidentally running a zoo, purely because I overheard a conversation where the magic words of commercial nows and accounting, and there was quite a big vision going on. I was swimming in a swimming pool at the time, and I got out of the pool. And I walked up to to the people talking, and I said, I’m really sorry, but I’ve got the hearing of a bat and I heard you were talking about this project.

I mentioned visible at this point, by the way, I heard that you were talking about this project, which sounded really interesting and it also sounds like something I can help you with. Still no mention of a zoo at this point and when I turned up to work, that on the very first day was only a couple of days later, I found myself that my work address was the back door to the zoo. Then chaos ensued, or you could probably make a movie out of it and it would be a bit Marx Brothers slapstick type of stuff but it was exciting and interesting.

I got into all sorts of scrapes. And then I came back to the UK and a bit lost–didn’t really know what I wanted to do. I knew I didn’t want to be an MD again. I started my exit and succession planning consultancy and I thought it would be something I’d do for a few months, maybe a couple of years. I’ve been back in the UK 13 years and I’ve been incorporated by 10 years this November and I’m busier than ever.

Laurie Barkman
That’s a wonderful story. Thank you for sharing the backdrop about the Middle Eastern zoo, because that was quite unusual. Congratulations to you on your upcoming anniversary. That’s very exciting! 10 years.

Christine Nicholson
Yeah. If you’d told me 10 years ago that I’d still be doing this, I’d have thought now, because there’s gonna be no need. But actually, the need is more than ever.

Laurie Barkman
Yeah, I can relate to that. It’s what motivates me too. We see business owners, we see opportunity, and we see challenges, don’t we?

Christine Nicholson
Yeah. I really see a lot of business owners who are turning their backs on a significant amount of wealth, given how hard you fought as a business owner, to build that wealth generator up. It’s an absolute crime, to see it drift away. It’s a crime to yourself for the effort that you’ve put through. It’s a crime to the current economic situation, and it’s a crime to the next generation. I use the word crime, which is quite emotive, but I really truly believe it is you did not work that hard to get where you got only to backslide.

Laurie Barkman
Right. Well, let’s, let’s hone in on this point. There. There are some statistics in the United States. I’m not sure how this would hold in the UK, but in the United States, in the lower middle market, 8 out of 10 companies that go to sell in the lower middle market will not sell.

Now, there’s probably a plethora of reasons why that is, let’s dive into why we think that is. So what are some of the reasons that you’ve seen, in your experience? Why a business did not sell when the owner was trying to do so? Well,

Christine Nicholson
I would honestly say that on the gold medal winner, you know, the top of the Olympic podium has got to be the business owner. They’re the biggest problem, mainly because they’ve built this business, to rely on them and it’s in it’s tied to their identity. It’s only reliance is the absolute biggie.

Laurie Barkman
Are there any particular stories that you could share? Keeping the names of the innocent protected?

Christine Nicholson
Yeah, good and bad ones, actually. Let’s do the bad news first. This was almost one of my early earliest clients. When I when I first started working independently, there was a guy called Trevor, who had invented this amazing product and it started out in his garage, literally, his home garage. Roll forward 10 years and he’s turning over well, north of 10 million pounds. He’s employing just shy of 100 people. He’s got General Manager in and he’s just hit the big five zero because he’s had a massive celebration. And things are going really well for him. I mean, he’s taking over a home well over a million pounds a year in dividends. Then he meets this new love of his life. So he’s getting a real second shot at life and he starts divorce proceedings. He goes and buys a house in his own name, and is really looking forward to the next phase of life.

He’s even started doing the succession planning but it’s already way, way too late. At least he started it but he hadn’t got some of the essentials in place. He hadn’t got a will for a start off and while he was preparing to divorce and remarry, he was up a ladder, fixing the outside of his house and he fell off the ladder. Within seven days, he was dead which is a real tragedy for everybody. But because he wasn’t divorced, and he didn’t have a will, it meant that everything just went to his not-quite ex-wife who had no idea about the business, but had obviously been enjoying the million pounds dividend every year.

This resulted in the house that he owned in his own name that was supposed to be with him and his new wife defaulted to the ex-wife or not quite ex-wife. The ex-wife, by virtue of being a shareholder because of the way that they’d set the business up for tax protection, decided that because she had the right to become a director of the business thought “I am getting in there.” Trevor had always kept her out but I am getting in there. She had no business acumen or training. She got involved in it, and business started, really tearing the business to pieces, spending loads of money on things that hadn’t never been spent money on clickers, it wasn’t necessary.

Within 18 months, that 10 million turnover business was in bankruptcy because there was no succession plan, no essential paperwork. Just a will, on its own, would have changed the dynamic. That was a real tragedy. In fact, what happened to Trevor is one of the key drivers to why I do what I do because it shook me to the core that this could happen, and that it could happen so quickly.

Here’s the good news story. I got this call a couple years ago and it was in the middle of all the COVID stuff. It was a Zoom call, never met this person before in my life. I said, “Hi, I’m Christine.” and he said, before he even introduced himself, he said, “I need to do something, I know, I’m the biggest problem in my business.” I was really taken aback and then he explained what was going on. Basically, he got a management team in place, and they’ve done a lot of really good stuff but because they hadn’t quite got everything in place, he still found himself stepping back in not because he needed to, but just because psychologically, this is my business, It’s my financial security.

Frankly, they can’t be doing this as good as I can. What we did was we, first of all, I always valued the businesses, because let’s get a mark in the sand of where we’re starting, so we did an evaluation. Then we looked at the structure and some of the things that were missing. I went through my framework because I always say, I’ll give you everything, you need nothing that you don’t, and we’ll we’ll make sure that nothing falls between the cracks because the devil is always in the details. Within a year, he’s fully retired and I got the most amazing letter from him saying, “Oh, I’m flying. I’m living my dream life in my dream location. You know, I’m playing tennis every day. The management team has increased the turnover of the business. They’re doing it amazingly well.” Are they doing it the way I would do it? No. But I got it started.

That’s why I always said to him, what were you afraid of? And he went, “Well, if they succeed, what does that say about how I was running it?” And he said, “But if they fail, how’s that going to impact me financially?” And I always say to people, what got you from zero to where you are today is not what will get you from where you are today to the next level. Those kinds of conversations happened plus we made sure we filled in all the all the gaps from a documentation and governance perspective.

We increased the value of that business by more than a million pounds in less than a year with no extra people. In fact, they reduced their headcount. They accepted natural wastage and still managed to do more turnover more efficiently and more effectively which means that his dividends have now gone up. He’s living his dream life and he’s really happy. They’re, at some point, they will be ready to sell. Now they’re equipped to even sell to their employees if they want to, or sell to a third party, or just keep it going for the shareholding to pass to the next generation.

Laurie Barkman
It’s a healthier business, the work to be done is to make it a healthier business so that one day it is ready to sell. It’s their time but sometimes it’s on the buyer’s time. Many times is on the buyer’s time. When the buyers buy when buyers are ready. Do you have any experience with your clients where they were not ready to sell when a buyer came a-calling because the company wasn’t prepared to sell? The owner wanted to but the company wasn’t prepared to.

Christine Nicholson
Sadly, it’s like I could put names in a tombola and pick those out and the number of times. I get approached two times: Either the business owner is very proactive and recognizes all the things that we were talking about, or they get an unsolicited offer. The unsolicited offer sometimes can have a really nice headline number. It’s like, “Well, I hadn’t really thought about selling, but all that number piques my interest.” it goes, as you went, I know, it’s not just about the number, it’s all about the terms. And if you’re not ready, it doesn’t matter what the number is, the buyer is just going to start seeing risk after risk after risk. What are they going to do?

Well, if it’s early enough, and they see a high enough risk, they’ll walk away. If it’s not obvious what those risks are, then they’re going to push you through due diligence, which is painful for everybody. Then they’re going to start chipping away at the price. Then they’re going to start making the terms harder and harder but by this time, you, as a business owner, you’re tired. If the business relies on you, you’re really tired, because you’ve now got two full-time jobs that are both really stressful. You start thinking, “I’ve got to go through this again. So actually, I’m going to compromise my terms, the terms that I would be acceptable.”

I’ve literally seen business owners sign something that if you had presented it to them on day one, they’d have when absolutely no way, but they’ve drifted into a price and terms that hell would have frozen over before they’d accepted it before the process. But they are now literally screaming, how much longer is this going to go on for? They’re just so worn down by it that it’s like, “I don’t care, just get it out, just get this away from me.”

Laurie Barkman
They get the short end of the stick in terms of value and the message would be it’s about being prepared and having more time on your side so that when it comes to the time, you’re ready to sell, the business is ready to sell as well. When should owners start transition planning to choose the next successor of ownership? Not the successor of leadership, that’s another topic. But the successor of ownership and my book, it’s chapter six, it’s one of my favorite chapters, which is: who should own the business after you?

Christine Nicholson
You should be thinking about that at the same time you’re thinking of setting up the business. It always starts with Stephen Covey, always start with the end in mind. It’s not just, and that’s not just just about, you know, operations or day-to-day stuff. This is about everything. You know, I don’t even start my day without thinking about what the end of the day in mind doesn’t. That’s not wishing my life away.

Seriously, I have a limited amount of time here. I know I’ve got a limited amount of energy, what needs to get done? What’s going to get me closer to a successful end of the day closer to a successful end of business? Day one is this, it’s the same thing as when’s the best time to plant a tree? Probably 40 years ago and the second best time is if you haven’t done it between now and 40 years ago, then now is pretty good. Why don’t you plan to do it tomorrow? Because we all could be dead tomorrow.

Laurie Barkman
We could be. There are so many people in the stage of their life–let’s say in age brackets. Whether you are a baby boomer, whether you’re a Gen X, or that’s getting older, and they haven’t started yet. When is it too late to start the exit conversation?

Christine Nicholson
Well, I’m an optimist so I’m gonna say it’s never too late. Let me reframe this into a different context: if you think about what you want, from your business in the way that it serves you as opposed to you being a slave to your business, then the minute that your business is unable to serve you in that way, is really too late.

Now, many business owners have actually set their entire business up and then the way the business model works is it’s never going to serve them for what they actually wanted it to in the first place because they didn’t set it up consciously like that. The best time to change is actually to start thinking about this succession planning, certainly succession of ownership. Just by focusing on that succession of ownership, all of the things that are needed for that will actually fall into place and you’ll start getting a business that that actually is actually capable of serving you.

Very rarely would I say it’s too late. But whether it’s too late for you, as the business owner to actually do it is going to depend. I’ve been approached by people who literally–actually, let me give you an example, recently, this is somebody that I’ve worked with, in the past, not succession Exit Planning, but I have had those conversations with him. He was always, you know, oh, yeah, tomorrow, tomorrow. I’m too busy now, tomorrow, tomorrow. About four weeks ago, I got a message saying, I’m closing my business down. I’m transferring customers to here and I’m doing this that and you’re there. And the reason is, because I’ve been diagnosed with a terminal illness.

Now, I only got that message less than a month ago, and he died last Friday. That is a classic case of it being just too late that even the diagnosis made it too late for him to do anything. I mean, he literally just pointed his customers to another supplier.

Laurie Barkman
Yeah. Wow, that’s a sad story. I was in a workshop this week with about 20 CEOs, not all of them were founders or business owners. Many of them were second commands type of folks. But someone had asked the question, “Well, our owner is 80, they’re not going anywhere. What do you advise?” That comes to mind, if you would ask me the question, people will either leave their business horizontally or vertically.

We talked a lot today about the horizontal. And, of course, we want to encourage the vertical, which is more proactive and exiting on your own terms, and not necessarily your your life going away for them and then the business going away. We want to have an exit that’s meaningful to you when you’re alive. In this situation of when is it too late and there’s no terminal illness involved, there’s not that type of crisis. Things are just coasting along, and the business owner is taking out a nice income, and they just cannot separate the personal from the business, their identity is so intertwined. In that scenario, is it truly too late for that person, we can just understand the factors and look at that situation and say, in our own minds, even if we don’t say it to them. “ Yeah, they’re never leaving.”

Christine Nicholson
Oh, yeah. I have some triggers and s when I’m talking to somebody who says, “Oh, I think I might need some help from you.” I go, “Well, just tell me about your situation.” These triggers are the two triggers: one of them is what causes “I’m never leaving my business.”

You might have booked a 45-minute call with me. And this might be three minutes in, I’m gonna give you the privilege of 40 minutes of your time back because if you’ve just said that to me, I can’t help you because that is something you need to change. It’s not for me to persuade you. I have tried to flog enough dead horses to it to get through that one but I’m never leaving my business. Sometimes I get really sarcastic and I just say, “Oh, great. We need to go into business together.” And they go, “What?” If you’ve got the secret to living forever, I reckon that you and me in business together, we can make so much money. Then you can see their little dials going. They realize that they’ve just said a foolish thing. Some people genuinely believe that I’m never leaving my business at all. I’m sorry to tell you that business owners leave their business.

Laurie Barkman
That’s right, a 100%. The other thing that we see, you’ve probably seen it too is “I don’t have a will in place.” or “Oh, my kids will live kids will get it then they’ll figure it out.” Whereas the management team is probably shrugging their shoulders like “Oh my goodness, those people should never own this business. It will be complicated. We really should figure this out before you pass.” Have you run into those scenarios?

Christine Nicholson
Oh, yes. Nobody’s actually directly said to me “My kids are sorted out.” Actually, they have said it to me directly, so I really worry about my kids sorting it out. If you put your kids imagine all your kids were 6,7, 8, 9, or 10 and you just walk in with a cake and you go “There you go!” Okay, that’s your cake and you can do with it exactly as you please. There you go, get on with it because that’s exactly what you’re doing. If you’re saying all my kids will sort it out, you’re basically giving 9 to 9-year-olds and asking them to divide it between them. I think any parents who are listening to this will know exactly how that’s gonna work because for the most part, then there’s cake everywhere, and nobody gets a full slice.

Laurie Barkman
You’re in mourning, right? The family is in mourning, and it’s difficult to bring people into a business they’ve never been a part of, the management team is shaken to its core, and the sharks might be circling in the water thinkin “Oh, we could get this business under good price.” But it’s all complicated. So I guess net-net, Christine.

If we were going to, say a business owner, why do they need it? What are some three reasons that you’ll summarize? Why do they need an exit and ownership succession plan?

Christine Nicholson
The first thing is, if you want to retire, if you want a business that survived longer than you, then it takes a bit of planning. The first real reason is, you’ve created value, why would you let that value diminish? It says that it should proliferate itself, value should proliferate, not backside. The first thing is protection of value, that’s why you should do it.

The second thing is the people who start businesses, we’re all crazy, we’re all unique. But remember, there’s a whole raft of the population out there that couldn’t actually have started it, but they’re really good at doing the next thing. They’re really good at managing it, and they’re really good at growing it. The second reason why you should start thinking about that is, is the legacy that you’re going to leave for the next generation, whether it’s your kids, whether it’s the management team, just think about all the stakeholders in your business. Just think of the things that you would be denying them by creating this massive mess, because that leads me to the third reason why you should do it. When you fall off your perch, then everybody around you is impacted by that loss.

As the point you just made, before, handling grief, and then learning something new, or sorting a mess out, and all of the other things that come through and generally, your family will be suffering from a loss of income if this is unexpected. Why put that much stress into the world? You’ve created a really good thing that should actually be bringing joy and happiness to the most amount of people. Why would you create an equal and opposite amount of misery by leaving a mess for the people that you genuinely care for behind?

Laurie Barkman
Yeah, that’s a great summary. We’ve talked about the Stephen Covey quote earlier, begin with the end in mind. I love that quote, too. I referenced it all the time. Is there another quote that you would like to share something that inspires you?

Christine Nicholson
For me, it’s all about living. So I found myself saying, “Never worry about getting old. It’s pretty a privilege denied to many.” the trouble is that that is often translated as well, if I’m getting older, I’m going to live forever. The aging process is great. Being an older business owner and thinking about all of that experience that you have, don’t throw it away because the minute you’re done, you’re gone. It’s lost.

Laurie Barkman
If our listeners want to learn more about you, Christine, what’s a good way for them to get in touch?

Christine Nicholson
Well, I’m all over LinkedIn. It’s my favorite place and I’ve been there for a long time, right? Right since the very beginning. It’s really easy to find me on LinkedIn, Christine Nicholson, and I’m a multimode award-winning business mentor, and also my picture comes up with my get-exit-ready quiz.

I’m really easy to find, my website is businessmentoruk.com. but I do serve an international audience. In fact, when we were talking earlier. I mean, I know it was talking about succession plus a bit. I do the exit in succession planning and I know that you do that. Then you do a bit that I don’t do. You have to be licensed over here to sell businesses and I’m not licensed to do that. Yeah, but businessmentoruk.com is a great place to find me.

Laurie Barkman
Excellent. Excellent. Well, thank you so much, Christine, for being with me today.

Christine Nicholson
It was a real pleasure and thanks for asking those questions because sometimes, I find it in people people say, “Well, you know what, why is it important?” you really drilled into it, about asking the right question, you really drilled in to get some really focused answers there.

Laurie Barkman
Oh, wonderful. So to our listeners, if you enjoyed today’s episode, please subscribe and leave us a review. If you have a question or want to connect and what you heard today, reach out to me at successionstories.com. Join me next time for more insights from transition to transaction


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