E246: Lane Carrick Reveals the SHOCKING Truth About Business Sales Failure - Watch Here

About the Guest(s):

Lane Carrick is a seasoned mergers and acquisitions (M\&A) professional with extensive experience spanning multiple industries and transaction levels. Lane has owned and operated various businesses, including banks and wealth management firms. He serves as an M\&A advisor, professor at Southern Methodist University's Cox School of Business, and is currently the founder and leader of Optima Merger and Acquisitions in Dallas, focusing on the lower middle market space.

Episode Summary:

In this engaging episode of the How2Exit podcast, host Ronald Skelton sits down with Lane Carrick, an experienced M\&A advisor and founder of Optima Merger and Acquisitions. Lane delves into his rich background, sharing how his entrepreneurial origins and deep financial expertise shaped his career. From working alongside high-net-worth families as a financial advisor to navigating complex M\&A transactions, Lane's journey offers invaluable insights for both novice and experienced business owners.

Exploring the nuances of the mergers and acquisitions world, this episode emphasizes the challenges inherent in smaller deals, with a significant focus on the reasons behind the low closure rates. Lane and Ronald discuss the pivotal role of realistic seller expectations, effective communication, and the necessity of thorough preparation before going to market. With poignant anecdotes and practical advice, Lane emphasizes the value of good advisory and how his current firm, Optima Mergers and Acquisitions, bridges gaps in the small and lower middle market.

Key Takeaways:

• Realistic Expectations: Unrealistic seller expectations often disrupt the successful sale of businesses. Proper valuation and advisory are essential.
• Importance of Preparation: Business owners should invest in exit planning and business preparation to maximize value and ensure smooth transactions.
• Advisory Quality: The choice of a knowledgeable advisor can significantly impact the transaction process, guiding sellers through realistic valuations and expectations.
• Emotional Component: Emotional readiness and clear post-sale plans are crucial for owners looking to transition out of their businesses successfully.
• Strategic Buyers: Directly targeting strategic buyers can often lead to better transaction outcomes than broadly marketing a business.

Notable Quotes:

1. "Businesses don't sell because sellers have unrealistic expectations about the value of their business."
2. "You're wasting your time and mine to go out to the market at a price that's not going to work."
3. "I think if I do my job well, which is running the system and process, you develop that relationship with the client."
4. "There are a lot of ways to play the game as you describe it, and people need to understand those pathways."
5. "Having a written investment policy statement around your wealth… you should have that same thing when planning to sell your business."

Article:

Unlocking the Secrets of Successful Small Business Sales: Expert Insights from Lane Carrick

Key Takeaways

• Realistic business valuations are crucial for successful exits.
• Effective communication is the backbone of any M&A process.
• Selecting the right advisor can make or break a business sale.

In a recent episode of the "How to Exit" podcast, Ronald Skelton welcomed Lane Carrick, a seasoned expert in mergers and acquisitions (M&A). Their enlightening conversation traversed various themes related to the sale of small to mid-sized businesses. From the importance of realistic valuations to the often-overlooked role of effective communication, Carrick's insights offer valuable lessons for business owners contemplating an exit strategy.

The Importance of Realistic Business Valuations

Unfulfilled Expectations: The Root of Failed Sales

One of the primary reasons small businesses fail to sell is unrealistic valuations. Carrick shared anecdotal evidence highlighting how misplaced expectations can derail a sale. For instance, he recounted a recent experience where a seller believed their business was worth $5 million simply because they and their partners each desired $1 million. "Your want does not translate into value," Carrick explained.

The Role of Advisors in Setting Expectations

Many business brokers shy away from having tough conversations with business owners about what their companies are truly worth. "They get to a business broker M&A advisor who doesn't tell them, 'Your house is not a million-dollar house; it's a half-a-million-dollar house,'" said Carrick. This lack of honest dialogue often leads to businesses going to market at inflated prices, making them unattractive to potential buyers.

In contrast, Carrick emphasized the necessity of educating clients about realistic market values. "The industry of M&A advisors, business brokers, doesn't do a good job of telling folks, ‘That's not where your business is,’" he noted. By setting realistic expectations upfront, advisors can help business owners avoid the pitfalls of overpricing their enterprises.

Effective Communication: The Cornerstone of M&A Success

The Human Element

According to Carrick, successful M&A transactions hinge heavily on transparent and continuous communication. "Everything you have now, everything you ever want to have in the future, and everything you've ever had in the past all comes down to communication," emphasized Skelton during the discussion. Effective communication isn't just about the numbers; it's about addressing the emotional and psychological aspects of the sale.

The Role of Exit Planners and Advisors

Carrick lamented that many sellers don't realize the importance of exit planning until it's too late. "You're probably calling the wrong guy first," he said, suggesting that sellers should initially seek out exit planners rather than directly contacting business brokers. Exit planners can offer a comprehensive view of what needs to be done to prepare the business for sale, making the subsequent involvement of business brokers more effective.

In this context, Carrick and Skelton stressed the importance of crafting a narrative around the business. This narrative should resonate with potential buyers' emotional and financial goals, enabling a smoother transition and increasing the likelihood of a successful sale.

Choosing the Right Advisor: A High-Stakes Decision

The Credentials Dilemma

Given the absence of strict certification requirements in the M&A advisory industry, choosing the right advisor can be a daunting task. "There's no real credentials or licensing. And so pretty much anybody can be a business broker," Carrick observed. This open-ended nature of the industry often results in business owners falling prey to inexperienced or unscrupulous brokers.

The Value of Experience

Carrick's approach to selecting an M&A advisor involves scrutinizing their experience and approach to advisement. "Look for people who are willing to tell you the unpleasant truths," he advised. Advisors who are forthright and experienced bring intangible value through informed decision-making, which can substantially impact the success of the sales process.

Carrick also shared his own approach, which combines technical know-how with relational skills. "Being successful for your clients, being a successful M&A advisor, not from the standpoint of making money at it, but from the standpoint of getting transactions that meet your client's goals, which will then satisfy my goals," he affirmed. This philosophy underscores the symbiotic relationship between advisors and business owners, where mutual success is the ultimate aim.

Summarizing the Insights

Effective business sales are a complex blend of realistic valuations, clear communication, and the right advisory selection. Carrick's discussion with Skelton unpacked these crucial elements, offering a comprehensive roadmap for business owners looking to exit their companies.

Realistic valuations set the stage for a viable sale, avoiding the trap of overpricing that leads to wasted time and unfulfilled expectations. Clear, honest communication bridges the gap between sellers and buyers, ensuring that all parties are on the same page emotionally and financially. Lastly, the selection of a knowledgeable and forthright advisor can significantly affect the transaction's outcome, guiding sellers through the complex landscape of business sales.

Carrick's holistic approach—rooted in his extensive experience—offers a refreshing perspective on how to navigate the intricacies of selling a business. For business owners contemplating their exit strategy, these insights provide invaluable guidance, making the daunting process of selling a business a more informed and less stressful endeavor.

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