Better Decisions Using Logic and Emotion
Hi – Brannon with Poe Group Advisors here. I want to talk to you today about the role of emotion in deal making.
We have a lot of buyers come to us with a tremendous amount of excitement, which is a good thing. I think every buyer needs to be excited about the potential CPA practice that they are going buy. Every seller needs to be looking forward to the next chapter of their lives.
So you’ve got this emotional component and the emotion is the energy that drives the deal because without that excitement the deal never makes it to the finish line. If you’re making decisions with only that part of your mind, then you’re going to miss some things that could be really important and you’re going to possibly hit some obstacles that could harm you.
So how do you balance the two? How do you keep the emotional component alive, while also being logical about the deal and covering your bases? What we find is that the answer is planning, you have to plan. You have to think ahead of time before you get into the heat of the deal what you want from it. For a buyer – you need to think about exactly the kind of practice that you want to buy, what are the parameters you’re looking for, how are you going to proceed, how are you going to do your due diligence, your financing and those sorts of things. So the advance planning is huge! Same thing for the seller – if you’re going into a deal, before you start talking with buyers, the more planning you can do the better. The more concrete your vision is, the better your outcome is likely to be. To learn more please read the rest of our blog.
Humans are emotional decision makers. According to a column in Fast Company, emotions rule our decision making so strongly that cloudy days can affect stock market performance. They cannot and should not be ignored. Discerning your emotions and those of the other party in a purchase or sale is a very important early step to buying or selling.
First, let’s talk about the emotions that should be present. In our experience, the motivation required for actually buying or selling a CPA firm (as opposed to kicking tires and doing a lot of talking) comes from the parties being in the right emotional frame of mind.
For the seller, timing is everything.
In our experience, the sellers who are the readiest have clear plans for what they want to do after the sale. Any hesitation is minimal, and they are looking forward to retirement or their next opportunity. Their desire to take on their next endeavor exceeds their love for their work. They are ready to let go.
For the buyer, their desire to own their own practice or expand through acquisition is greater than their fear of buying a firm. They are confident, excited and committed to this significant step.
As mentioned in our opening, there is an important balance. Emotional buying can be mistake prone. Just ask the people who bought anything during a market craze – like some of the US housing markets in 2006/2007, or internet stocks in the late 90’s. Life circumstances and numbers also play a vital role in good decision making.