Community Bank CEOs: The Four Stages of a Successful Bank Sale

Every bank, every CEO/owner, every bank sale is unique.

Bo Burlingham, author of the 2014 book “Finish Big: How Great Entrepreneurs Exit Their Companies on Top” broke out the process into four stages:

• Stage One: Exploratory
• Stage Two: Strategic
• Stage Three: Execution
• Stage Four: Transition

How these stages unfold is as different as the bank and the CEO/owner.

Some find the process depressing and painful.

Others find the process to be quick and painless.

I recently read Burlingham’s book, well after I had completed my own book specifically about the process of selling a bank, based on my personal experience.

I have been a fan of Burlingham’s work, having read his 2005 book “Small Giants: Companies That Choose to Be Great Instead of Big.” That book was particularly meaningful to me having started a de novo bank in 2006. Our goal was to provide an exceptional commercial banking experience to privately held businesses in Kansas City.

In “Finish Big,” Burlingham spent three years interviewing scores of entrepreneurs who had exited, were in the process of exiting, or were getting ready to exit their companies. He found while no two exits were exactly alike, it was equally obvious some were better than others. People wound up happy with the process and satisfied with the way it turned out. Others looked back on it as a nightmare and came away with deep regrets about the outcome.

That experience led Burlingham to look for the reason why. What did people with “good” exits do differently from those who had “bad exits?”

Burlingham had to clarify in his mind what a good exit consisted of, and for most people, he found there were four elements:

1. Owners felt they had been treated fairly during the exit process, appropriately compensated for the work they’d put in and the risks they had taken to build the businesses.
2. They had a sense of accomplishment. They could look back and know that through their businesses they’d contributed something of value to the world and had fun doing it.
3. They were at peace with what happened to other people who’d helped build their businesses – how those people had been treated, how they had been rewarded, and what they had taken away from their experience.
4. They discovered a new sense of purpose outside their businesses. They had new lives that they were fully engaged in and excited about.

Burlingham was then curious about how the owners who had good exits went about preparing for that day. He went on to identify eight common characteristics:

1. They were clear about who they were, what they wanted out of business, and why.
2. They learned to look at the business through the eyes of a potential buyer or investor.
3. They had given themselves plenty of time – measured in years, not months – to prepare for their eventual departure and had developed options, so that they; or their heirs, would never find themselves in a situation where they would be forced to sell under disadvantageous circumstances.
4. The fourth characteristic didn’t apply to all owners, but it was vitally important to a significant percentage of them – the importance of leaving their company in good hands.
5. Happy former owners had the right kind of help, which came not just from the professionals who specialize in the buying and selling of businesses but also from former business owners, who had experienced the process themselves.
6. The owners had thought about and had come to terms with their responsibilities to their employees and investors.
7. They understood who they were selling to and what was motivating the buyers.
8. The owners who did the best had a vision of what they would do after the sale and thus were better able to handle the next “season” of life, moving from top banana one day to an ordinary piece of fruit the next.

So back to the four stages of a successful sale:

Stage One: Exploratory

The exploratory stage involves investigating the many possibilities, doing the necessary introspective work, and deciding what you do and don’t care about in an exit. It may also include coming up with a number – the amount of money you’d be happy to walk away with when the time comes – and a time frame.

Stage Two: Strategic

It requires learning to view your company as a product itself, not just a deliverer of products and services, and then building into the qualities and characteristics that will maximize its value and allow you to have the kind of exit you want.

Stage Three: Execution

Execution is the process you go through to get the deal done, using whatever type of exit you’ve selected. You may have chosen a sale to a third party, a management buyout, a gift to your children, or a liquidation of assets.

Stage Four: Transition

It begins with the completion of the deal and ends when you’re fully engaged in whatever comes next. Until you’ve moved on – not just physically but psychologically – to a new venture, a new career, a redefined role. Even in retirement, your exit isn’t complete.

Burlingham also points out there can be an overlap between the stages, especially the first three.

Smart entrepreneurs, for example, always build a business today so that it could be sold tomorrow (stage two) whether they’ve decided exactly how they’d like to exit (stage one).

Once a business owner understands the process of negotiating a sale of the business (stage three), the savvy owner may take what they’ve learned, and revise their strategic plans (stage two) accordingly – perhaps with a different view of where they’d like to end up (stage one).

This is why it is important to gain an understanding of the process well in advance of a sale.

Burlingham goes on to point out the importance of getting the first three stages right, ensuring you have the best chance of getting stage four right.

As you may be thinking about your exit (could be years down the road - even better to begin thinking about now), you'd be making a mistake only thinking about how much you can get for it.

The bigger challenge is to figure out, as far in advance as possible, what will take the place of those other important needs your bank has filled.

If you can manage to use your new wealth as a steppingstone to an even higher calling you can truly be said to have finished big.

Action plan:

• Review the four stages and give them some serious consideration. Try to get to a quiet spot where you can have some time for solitude.
• If you are needing some prompts for stages one through three – specifically as it relates to your bank – pick up a copy of my book, “The Art of Selling Your Bank: A Bank CEOs Step-By-Step Guide” available on Amazon.com.

There are zero hacks or tricks in this newsletter. Just proven tactics that help you choose the right path for your bank.

Your path will:

• Inform your strategic plan.
• Guide your annual business plan and budget.
• Clarify priorities.
• Define your message so it can be communicated with confidence.

This is how savvy bankers navigate.

They build smart and valuable banks and choose the best time to sell – serving the needs of the shareholders and the board.

I hope you found this short lesson helpful.

What are your thoughts?

I’ll see you next week.