I first got the idea from an entrepreneur named Greg who had moved his family to Geneva for a mid-life sabbatical.

As I started to explore the possibilities of moving to Europe, I realized that – at least among the entrepreneurs I know – it was more popular than I had at first realized. My friend and the founder of Gazelles, Verne Harnish, had moved from Virginia to Barcelona, Spain with his wife and four children.

Robert Barnard, another friend and the cofounder and CEO of DECODE, had left Toronto for London, England with his wife and young family.

I think a sabbatical abroad appeals to an entrepreneur’s sense of adventure and is often more feasible for a business owner than it would be for a big company manager who has to stay on the career ladder out of fear of being passed over for a promotion or wait years for an overseas assignment that might never come.

Inspired by our friends, my wife and I moved our young family (we have two boys age four and six) to a town called Aix-en-Provence in France, which I picked after exhaustive research: I googled “the sunniest place in France.”  The extent of our family’s understanding of the language was a rusty old twelfth grade French credit I had taken twenty years before. We recently celebrated our first year over here, so I thought I’d share a few reflections in case you’re planning a similar adventure:

1. Send them to camp

Most entrepreneurs on sabbatical plan their arrival around the beginning of the school year, but I’d recommend moving in mid-summer to give your kids a few weeks of summer camp. Most developed countries have a network of camps (in France they call them “Stage”) where working parents can drop their kids off for the day. For the type A crowd, there are “language camps” that offer kids a fun way to learn a new language.

We decided to enroll our kids in a half-day sports camp to minimize the shock they would soon experience in full-day French school.  The first few days of summer camp were full of tears, as our kids felt alone in a country where they neither spoke the language nor had any friends. But at camp they knew they were only ever a couple of hours away from seeing their parents again and they soon acclimatized.  I think getting the tears out of the way in the summer made the first few weeks of the school year much easier.

DECODE’s Robert Barnard took a different approach to integrating his kids into a new country: “We took a one-month trip to London a year before we moved. I worked and the kids did some camps and museums, etc. Then when we said we were going to do London for the year, it was not a big deal.”

2. Picking a school

Picking a school for your kids can be a tough call. Places like London, Geneva, Aix-en-Provence and Barcelona are popular among North American entrepreneurs because they have international schools that follow the Baccalaureate program, which offers a curriculum close to what North American kids are used to.  Putting your kids in an international school also creates an instant network of (mostly) English-speaking parents eager to make friends.

My wife and I opted for a different route and put our kids in a local French school so we could integrate into life here a little faster. We’re happy with our choice because it has allowed our kids to be immersed in French and enabled us to meet local French parents.

In your case, I would make the call based on how long you expect to live abroad: if your horizon is one year or less, an international school will be less disruptive for your kids (although more expensive). If your time horizon is longer, I think the local school route will allow you to integrate faster.

Robert Barnard, who is in the UK at least in part to set up an international office for his company, has another good suggestion: “Pick the school first, then the house. Commuting with kids to school is tougher than commuting on your own to work.”

3. Wheels

When we first arrived, I had a big Citroen Berlingo (think French Magic Wagon) and regretted every minute of our ten-day rental. Trying to park that tank in a country where a Mini is a midsized car was an exercise in frustration. French roads and parking lots are designed for small cars, so my advice – especially if you’re planning to live virtually anywhere outside of North America – is to buy a car a lot smaller than what you’re used to. I opted for a Diesel Audi A3.  It goes 1,100 kilometers on one tank of fuel (in Europe fuel costs about fifty percent more than it does in North America) and fits down the cobblestone lanes of even the oldest French villages.

I also bought a 50 cc scooter and that has been a godsend. If you live in a European city, circulation can be atrocious. A scooter allows you to maneuver around most traffic jams and park on any street corner or sidewalk. Hands down, my scooter has been the best 900 Euros I’ve spent so far.

The other option is to pick a city where you can live car-free. “The advantage of living in a city like Barcelona is that we didn’t need a car,” says Gazelle’s Verne Harnish. “In fact, it was part of our strategy to jettison our ‘addiction to the automobile’ that we have in North America.” (For the record, Verne also bought a scooter, much to his wife’s chagrin!)

4. Unplug

Whether you plan to work on your sabbatical or completely unwind, be prepared to be without a reliable connection to the Internet for the first month or so of your time abroad. When we first arrived, it took about a month to get an Internet connection installed in our house. What made Internet matters worse was that there are very few Wi-Fi zones in the south of France. One of the only reliable Internet connections was at a local McDonald’s franchise, so instead of sipping Rosé in a café, I ended up loitering at the golden arches daily just to download email.

5. To ship or not to ship

Our cost of living here is about what we would be paying in Toronto, but there were a couple of one-time expenses that we’ll never get back. One was the $15,000 we spent to have the contents of our house in Toronto shipped here.

We struggled with the decision to ship our things or not. Personally, I could care less about furniture except for one precious item: our Tempur-Pedic mattress.  But there were also things like the kids’ bicycles and a few toys that we knew we would miss if we didn’t ship our stuff.

As with a lot of things, my advice would be to let the length of your stay drive your decision making. If you plan to stay for more than two years, I think shipping your stuff will make you feel more at home and will probably be less expensive when compared to buying everything – or paying the premium for a furnished house. If you’re staying for less than two years, it probably makes financial sense to rent a furnished home or make friends with the local IKEA.

One other important nuance about renting a house: in France – and I’m not sure what it is like in other parts of Europe – you can rent a house furnished or unfurnished and there is a big difference from a legal perspective. In a furnished house lease, most of the rights go to the landlord, so they can cut short your stay if they want their house back. In an unfurnished house lease, the rights go to the tenant and the landlord cannot cancel the lease prematurely, yet you have the opportunity to cancel it within 60 days of the anniversary of each year of your lease.

6. Play time zone arbitrage

“I love being in the European time zone,” says Gazelle’s Verne Harnish, “First, I’m not receiving emails from North America until mid-afternoon, so I have all this uninterrupted time during the morning and early afternoon – great for relaxing, working on interesting projects, or playing tennis. In turn, it’s so much easier communicating with India, the Middle East, China, and even Australia, being six time zones closer.  So I can be on with the East in the morning if I like, enjoy a long afternoon lunch with my Spanish friends and then hop on with the West in the afternoon and be finished by the time the children get home from school.  In essence, the epicenter of the global economy has shifted east and being in Europe puts me six time zones closer to the action – one of the main reasons I’m excited we’re staying in Europe.”

Recently I got a note from an Italian-American entrepreneur who, at age 44, is considering taking his family to live in Italy for a year. I told him that it was a “game changer,” which is the best way I can describe the decision. I think I now come at business problems with a broader perspective; but the real dividends have been on the home front, where our sabbatical has brought us closer as a family and given us some amazing memories and a larger world view than we had before we left. Bon Courage!

PS. I’m coming over to the U.S. for a couple of days in January and have decided to host a reader workshop. Details here.

How do you imagine life after selling your business?

Are you travelling? Europe maybe? Patagonia, or somewhere nice and warm?

If you’re like most of the business owners I know, you imagine selling your business, having a going-away party, and riding off into the sunset.

Increasingly, it’s not working out that way.

In a shaky economy, with banks shy to lend, the proportion of cash that business owners get when they sell is sinking with the proportion of the sale price put “at risk” in some sort of “earn-out” or “vendor take back” loan is going up.

Recently, I hosted a workshop in Toronto and invited an M&A professional who spoke about the typical deals she is doing these days. She shared the story of one buyer who is acquiring marketing services businesses for as much as ten times earnings before tax. The fine print? They only pay three times earnings upfront and leave the possibility of the other seven in a five-year earn-out.

The seller sees the finish line; the buyer fires the starting gun

Buyers and sellers come at the M&A process from totally different points of view.

The seller is usually just willing their tired old body to the finish line. On the other, you have a buyer just about to fire the starting gun. But the buyer isn’t planning on doing any running; they expect you to hear the gun and run faster than you ever imagined possible.

Is it just me, or is there something wrong with this picture?

Note to buyers: we’re tired, not stupid

I think buyers need to stop being greedy. I saw a deal recently where a rental business had grown to twelve million dollars in sales and more than two million in EBITDA. They were being offered six million dollars upfront and another six million dollars available through a complicated, five year earn-out formula.

Are you kidding?

Do you know what it takes to build a business from scratch to a point where it is generating two million dollars of profit? Have you any idea how burned out and tired the business owner must feel? This owner has built the business to the equivalent of a Picasso and you want to steal it for three times earnings?

For a gem like this, you need to pay a decent multiple upfront and put a reasonable set of goals together for a one or two-year earn-out. I don’t care what your spreadsheet says; a victory lap is okay but indentured servitude is not.

Note to sellers: move up your “sell by” date

Sellers – I like you. A lot. I consider myself on your side, but you have to understand that the days of driving off into the sunset on closing day (unless maybe you own a technology business that runs itself) are over. As a seller, I would tell you to plan to sell WAY earlier than you think you want to, so that you still have the energy, ideas and passion for the business to get you through the earn-out.

Yes, if you do everything right (recurring revenue, management team, unique niche, double digit EBITDA growth etc.), you can increase the cash proportion of your take from a sale from maybe 40% cash upfront to something closer to 65 or 70%; but you’re still going to be leaving at least a third – if not much more – of your money on the table if you plan to take your foot off the gas after closing day.

If you think you want out in five years, my advice is to plan to sell in two, so you have some juice left to get you over the finish line, which is moving ever further away.

(photo courtesy of Flickr/Nordea Riga Marathon)

A friend of mine from Miami called me the other day wanting to talk. He’s not much for chit chat so I knew something must be up with his business.

He runs a very successful importing company with forty people across the U.S. He has fat profit margins, hedges his currency risk and has actually been able to grow through this recession. In short, he’s one of the lucky ones.

As our conversation unfolded, he revealed that, even though he’s more than a decade away from “retirement age”, he has decided to sell his business.

He started our conversation by giving me the strategic reasons for getting out now: he’s in a growing, consolidating industry and they’re coming off their best year etc. but I could sense there was a deeper rationale for why he wanted out. Finally, he came clean:

“I guess I just want to take some chips off the table.”

As soon as he uttered those words I was reminded of one of the strongest reasons I wanted to sell my last business: the desire to stop gambling.

The bigger the business, the more risky it feels

They say starting a business is risky but I don’t see it that way. When you have nothing to lose, you’re not risking much. Sure, smaller businesses have a higher failure rate than larger ones, but I think they are actually less personally risky for the owner. If the start up you’ve sunk $50,000 in fails, you’re out $50,000. Not fun, but also not a death knell.

As my last business grew, I started to get the sense I was gambling more than I would like. It was a subtle feeling that started innocently enough but grew as time went on. I had most of my financial eggs in one basket and every day I went to work, I was gambling it.

The more successful our business became, the more nightmare scenarios I imagined:

• What if xyz company starts competing with us?
• What if xyz person leaves us?
• What if we have a fire?
• What if our network gets hacked?

These thoughts kept going through my mind – usually in the middle of the night — to a point where eventually it was worth selling to stop the little voices in my head.

The risk that feels heavy to you, is light to somone else

And there is someone out there who is happy to take on your risk.  A business ten times your size might happily absorb the threats that feel heavy to you as a small price to pay for a chance to grow. For them, gambling on your little business might be fun money.

If you want to make the voices stop, consider these four strategies:

Option 1: Milk the cash cow

One tactic is to put the breaks on your growth and squirrel away enough cash outside of your business that your company becomes a smaller proportion of your overall nest egg. Usually this means shunning growth opportunities in favour of maximizing your profits, but if you do it right, you can reduce the feeling that your gambling and hang on to your entire business. Just make sure you keep your cash in a separate account outside of your company so that it is safe from creditors and law suits.

Option 2: Limit your risk on a vendor take back

The only thing worse than gambling on yourself is letting someone else gamble your money. When you sell a small business with less than a million or two in revenue, you typically have to finance part of the sale so you’re taking a risk that the buyer knows what they’re doing.

Take a hypothetical case of a business that sells for one million dollars. The buyer might scrounge up $600,000 and ask you to finance $400,000. You get an interest rate better than you would at the bank but you also get your business back – albeit in much worse shape than when you left it – if the buyer defaults on your loan.  The best way to limit the proportion of cash you lend the buyer is to get multiple offers for your business (use a broker to drum up the bids). Also do whatever you can to ensure a monkey could run your business (systems, tools, templates, manuals etc.). That way, even if the buyer is an idiot, they can’t screw your business up too badly before you get your money out.

Option 3: Take a second bite of the apple

Recently, some private equity companies have condescended to come “down market” and are considering businesses with “as little as” one million dollars in EBITDA. They used to consider $3 million in EBITDA the floor but they’re becoming desperate to invest the cash they raised in 2007 before they have to give it back. Taking money from a private equity company can allow you to pull some chips off the table while remaining in the game.

For example, you might sell 50% of your business to a private equity company for four times EBITDA and continue to hold 50% with the hopes of getting a better multiple on the second half of your shares. You get to pay off your house, and buy a boat (or ski chalet or whatever) and – at least in theory – get to sell your second tranche of equity at a premium multiple (maybe six, seven or more depending on the industry, your growth potential etc.) because the private equity folks have helped you scale up.   You sleep better and stay in the game. I say “in theory” because working for a private equity company is not for the faint of heart. More on that later.

Option 4: Sell

Of course, the very best way to stop gambling is to get liquid and sell. It’s not a fool proof solution because you’ll still have to leave some of your money in the business in the form of an earn out. You’ll also have to  leave about 10% in an escrow account for a year just in case the buyer discovers something they think you lied about during diligence.  But if stopping the voices is your number one priority then selling free and clear is probably your best option.

PS. If you’re thinking about options 2 – 4 in the next couple of years, consider coming  to the workshop I’m hosting in Toronto and Chicago week after next. I think it will be worth your while.

Flickr photo courtesy of JulieFaith

Mont Sainte Victoire, Aix-en-Provence.

Yesterday I had a call with a woman from The Strategic Coach. We were discussing the possibility of a partnership but she didn’t like the name of my book, “Built to Sell”.

“We encourage our members to keep their business forever” she said, “and I don’t think we want to be associated with a book that recommends entrepreneurs sell their company”

Hmmm, how strategic of them…

Distancing one’s self from a book called “Built to Sell” is actually pretty common. Often reviews of the book start with the following disclaimer, “Now I’m not thinking of selling my business, but if I were, this would be worth reading because blah blah.”

Somehow, the idea of selling a business has become something only money-grubbing, heartless mercenaries would contemplate.   >> More

One of the things I found was important in building a company to sell was having employees who understood our vision and aspirations as a company. I tried to ingrain those ideas so that when it came time to sell, people didn’t need me to be around to remind them.

The video above explains how David Ogilvy used Russian dolls to ensure his culture would survive the sale of his agency. You can read more about Ogilvy and how he prepared his business for his departure in my interview with Rohit Bhargava, the author of Personality Not Included.

Please use the comments section of this post to share the tactics you use to remind employees of your values when you’re not in the building.