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Whether you're selling your business soon, a decade from now, or never, building your BATNA is the ultimate game-changer for your financial future.
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Why building your BATNA is the ultimate business power move
14 January 2025
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14 minute read
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BATNA: Best Alternative To a Negotiated Agreement.
My professional and personal worlds
In my professional life, I spend almost all my time with business owners or past business owners. These people fall into three major categories:
- Slipstream Group Clients who own Accounting and/or Financial Planning businesses in Australia that turnover between $1M–$25M.
- Slipstream Coaches who have all owned their own versions of the above.
- CEO Groups and Masterminds: I’m part of several different coaching organisations as a client, and these business owners can be from any industry, running businesses that range from about $3M to $500M.
What I realised over my Christmas break, was that my personal life mirrors my professional one. I naturally gravitate toward business owners, founders and serial entrepreneurs.
A New Years' Eve conversation
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So on New Year’s Eve (technically early New Year’s Day) at a bar on the Mornington Peninsula, Victoria, I find myself having a conversation with a business owner who is on the cusp of selling his business in a significant eight-figure deal.
It’s a super interesting time of life, almost regardless of the size of the deal or the mindset of the business owner. I've had this conversation a lot. In fact, I estimate over 100 similar discussions in the past 18 months.
I get calls from people I haven’t spoken to in years that might start with:
- “Hey, do you know a business broker?”
- “Hey, this is super confidential, but I just got an offer to buy my business and didn’t know who to call. Got time for a chat?”
There’s a universal truth for all business owners preparing to sell:
Your BATNA is your most powerful asset—not just during negotiations, but throughout the life of your business.
5 Anti-BATNA building moves that undermine your position
Here are five common mistakes I see ALL the time (warning: this gets dark before we end on a high note):
- Relying solely on your business for retirement: “My business is my super.” This mindset results in no investments in appreciating, off-farm assets. It’s an “all eggs in one basket” approach that’s risky.
- Prematurely increasing personal spending: One to five years before the business is going to (hopefully) sell, the owner, or often their spouse, starts to increase the family spending beyond their current annual income, eroding their net wealth on the daily. Listen for phrases like: “Well, John’s business is worth a lot of money, and he’s thinking of selling it soon so we can afford to buy X (car, boat, house, luxury holidays, casual retail overspending, etc.).”
- Neglecting team and systems investments: The business owner doesn’t invest or stops investing in building the team, systems, and business resilience because they are concentrating on the exit. This might be in an effort to get lean and boost the profit; usually, it’s just a shift in focus from the main game to the end game.
- Not keeping up to date on the valuation game: Not understanding the valuation methodology for your industry and the potential shifts in the way your business could be valued in the future. I could not count the number of financial planning firms a few years ago that were chasing exclusively revenue because a major acquisition player—aka buyer of last resort—would pay 4x revenue: “So this $3M business that has a negative EBIT after I pay myself a commercial salary is worth $12M – TA DA!” …Until they weren’t, and now the market is moving towards a multiple of EBIT valuation, and zero multiplied by any number ≠ TA DA!
- Neglecting personal health: Generally, not taking care of their health. Not taking quality breaks away from the business to recharge, not prioritising health (both physical and mental), and operating in a highly stressed state for long periods of time—or virtually permanently. I’m not sure of the stats on businesses that “fire sale” due to the owners’ health but I’m going to suggest that’s not how you want it to play out.
A realistic scenario
So let’s explore this in the scenario of all five of these anti-BATNA moves:
- You approach the sale of your business where this deal is the total make-or-break for your financial future.
- You have a declining personal net wealth—so bad that the sale of the business is essential to maintain your current lifestyle.
- You are really not enjoying running the business. It feels heavily reliant on you, and you have critical people that, if they left, you haven’t got their successor.
- The systems are not working the way they should, and every day you are fighting fires.
- The valuation for your business was a complete shocker; you were caught off-guard that it wasn’t just based on X like you thought.
- Your health is on the decline. It’s noticeable, and you feel it.
In this scenario, your best alternative to selling the business is not pretty. In fact, it’s scary, and likely the feelings of shame about the whole situation are present at the negotiating table. This seller is in a highly vulnerable position, they have eroded their leverage and options.
5 BATNA-building power moves
- Invest outside of your business: Your business might be the main game, but you have built a diversified, growing portfolio of likely passive investments that represent an increasing proportion of your net worth.
- Live within your means: Regardless of the likelihood or the proximity of the deal, avoid spending based on the anticipated sale. Do not start spending the money or uncorking the Grange until the transaction is done.
- Focus on long-term sustainability: Continue to make decisions in the best interest of the long-term success and sustainability of the business. Make decisions that mean you enjoy your role in the business and the freedom it provides you.
- Understand valuation trends: Understand the transaction landscape in your industry and be across the trends. If there are multiple valuation methodologies, build your business so that either methodology results in a win.
- Prioritise your health: Maintain physical and mental well-being for resilience in life and business. Now, always, and forever.
A different negotiation experience
Ok, so now we are entering a conversation about the sale of our business feeling very differently:
- You are financially secure regardless of this deal.
- The business brings you joy and freedom.
- Strong systems and a resilient team are in place.
- You know the transactions that have happened recently for similar businesses and enough about the valuation particulars to be dangerous.
- You’re fit and healthy, just back from a great holiday, and looking forward to several more.
If this deal doesn’t proceed, life is still amazing. In fact, it would have to be a hell of an offer to make it worthwhile….
Final thoughts
The most valuable asset is the one that you don’t need to sell.
You can build your future BATNA today and every day. Building your BATNA will not only create future leverage, options, and power but it will also enhance your business and improve your life!
Told you we’d finish up strong. Let’s go 2025!
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