Sales lessons companies learn the hard way

For most companies, if you’re not out selling, you’re probably not winning.

Unfortunately, selling successfully to other businesses is often easier than it looks. There are several sales lessons or hard truths companies are likely to encounter at some part of the sales cycle.

Here are five of the most important  sales lessons…

  1. Selling cost savings is tough

Few companies like spending more money than is necessary. That doesn’t mean that a product or service designed to save money is always an easy sell. For many businesses, products and services that can add to top line revenue are far more attractive than those designed to bolster the bottom line.

While this doesn’t mean that selling cost savings is impossible, if your primary customer value proposition is savings, don’t be surprised if you end up on the back-burner.

  1. The sales cycle is almost always longer than you expect

Entrepreneurs starting new businesses are often told to take the amount of money they think they need to get off the ground and double it. The reason: it usually takes more time, and therefore money, than anticipated to get going.

The same logic often applies to the buying cycle. If you believe, for instance, that it will take three months to close a sale, think again: there’s a good chance it will take longer, and perhaps significantly longer. So, if you haven’t yet established the length of the buying cycle based on real-world experience, assume you’re underestimating.

  1. Timing is everything

The biggest sales challenges B2B businesses face is the budgeting cycle. Budgeting cycles that are especially common at larger companies. Budgeting cycles are particularly relevant when selling larger-ticket products or services, or products or services associated with capital budgets, and can easily delay deals by six months to a year.

  1. There’s no place in the budget for you

Your business may have the perfect product or service, but successfully selling it will often require more than affordability. In many cases, the where is just as important, if not more important, than the how much. If a prospective customer can’t easily figure out from which budget your product or service should be paid for. More common occurrence than one might think, your salespeople may be left in sales purgatory regardless of how attractive your offering is.

  1. Legal can be a deal-breaker

The last steps in the sales process, legal, can easily delay a deal, or break it altogether. Don’t assume that a standard agreement will pass muster. The reality is that your agreement is likely to be sent to a lawyer who will rarely have the same urgency to close that you do.

Perhaps the most helpful advice is to consider it as a buying cycle rater than a selling cycle…

Getting Your Business ‘Fit for Sale’

Building a business takes hard work and skill, so what makes your business more attractive to a buyer than another, ie ‘fit for sale’?  Typically a business that is fit for sale will be a company with less risk associated with its future potential, remember buyers may be looking at several potential acquisitions simultaneously.  The one they choose may not be the one with the greatest growth potential and exponential projected earnings growth, but the opportunity with the less risk.

As a rule of thumb lower risk companies command higher valuations than higher risk companies – it just makes sense.  If you are a buyer acquiring a privately held company, you inherently will also be acquiring a certain level of risk. The opportunities with lower risk will generally command a better valuation because the return on investment is considered to be safer than it is for a more risky investment opportunity.

So to ensure your business is fit for sale at the right price the 3 areas to look at are analysed below.

How well documented are the company’s operations, and how up to date is the company’s technology?

What most small business owners hate is paperwork. However, during the due diligence, buyers will ask you to provide written evidence that the company’s continuity can be maintained even if management changes.  The easiest way to prove this is to create procedural manuals that clearly outline how the company functions.

Another good idea is to creating detailed job descriptions that outline the key role employees play and clearly demonstrates to a business buyer that your company’s success is not due to luck but is driven by a well organised team.

On top of that, make sure that your technology is up to date.  Even if you operate in a “low tech” industry, the reality today is that every company uses some level of technology in its operations.  At a minimum make sure that your accounting system is robust and can handle the demands of a buyer during due diligence.

What is the company’s exposure to market shifts?

A trap that many business owners fall into is commonly called “customer concentration.”  It is amazing how many business owners we meet are quite proud of the fact that Customer A represents 50% of the revenue of the company and that percentage is steadily growing. Although having a strong relationship with a blue chip customer does indicate a level of customer service that many would envy, it does raise the level of risk for a buyer.  Simply put, if Customer A decides not to do business with the new owner, he or she is suddenly in a position of being forced to replace nearly half of the company’s revenue overnight.

Most business owners will claim that would never happen because the relationship is mutually beneficial and new owners need not worry about losing the business. However, even if the relationship is contractual, buyers will view the business as risky. Do not become complacent and let your business become dependent on a single source of significant revenue.  This issue cannot be over stressed – always look for new business and new opportunities.

Does the company have a developed management team?

Finally, perhaps the area that buyers will focus the most attention on is how dependant the business is on the current owner.  Unless you are planning to stay with the company indefinitely post-acquisition, it is vital for you to hire and groom managers for your business.  And once you have hired them you then need to take the next step and do something that most entrepreneurs find very hard – delegate key decisions to them.

Buyers grow very concerned when they encounter a business that relies solely on the founding entrepreneur to make all decisions.  Successful companies that are fit for sale are led by a team of key individuals, not just the founder.  To reduce perceived risk even further, it is usually best if the person(s) you identify to groom are not family members.

These are just three common areas where we see buyers looking closely at the level of risk associated with an organisation. There are certainly others that we encounter regularly during due diligence.   You need to examine your company as if you were a buyer – this is very difficult to achieve if you are running your business day to day.  It is an ideal opportunity to get some independent and objective advice, call 07720 397040 or alternatively contact Phil via this form.


Tis the Season for Reflection….Fa La La La La

Tis the Season for Reflection….Fa La La La La

In the words of Winston Churchill, ‘Christmas is a season not only for rejoicing but of reflection’. 

As a small business, there is much to do as the year draws to a close but the end of the year marks a threshold with a perfect time to pause for reflection. Ask yourself and your team ’How did we do?’ and ‘What do we want to do better next year?’. Take stock of the year, celebrate the successes, evaluate your goals and plan ahead for a successful and profitable 2017.

For us at CMC, it has been a joy to help our business owner clients on their journey towards achieving their personal ambitions for their business. Whether to grow, increase value, retire or sell their business, we have guided owners through important decisions and provided clear actionable steps for their successful outcome.
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CMC Partners would like to wish you all a very Merry Christmas and a Successful New Year!

Sales

Survey – Taking Control of Sales

For many small businesses, it is easy to focus all energy on daily business operations and serving existing client demands whilst others who seek to acquire new customers find controlling sales a serious challenge. Implementing an effective process will help gain new business from current and potential customers, essential for growing businesses.

To help support business owners through the trails and tribulations of the sales process,  we are keen to hear from you and discover the obstacles you are currently facing.

Sales Process Survey

This survey has been designed to gain an insight into these challenges to identify common themes and trends.  As a result of your feedback, CMC Partners will share with you:

  • A summary of our findings – all contact details and answers will remain completely confidential 
  • A copy of our forthcoming white paper, offering practical advice and best practice guidance to help you successfully manage your sales process going forward

In the meantime, should you wish to contact us for more information, please complete the ‘Contact Us’ form at the bottom just below the questionnaire.
Create your own user feedback survey

How do I sell my business in the next 6 months?

As the UK economic recovery appears to have taken hold in 2015 & 2016,   as well as the problem of overtrading and running out of cash, owner manager are looking at their exit options.  The vast majority of owner managers have never exited a business before, and many generalist business brokers exploit this with promises of high multiples or valuations and many potential interested parties.

I also wrote an article earlier this year stating why now is a great time to sell your business, read this now

However, the reality for most UK businesses (or read ‘owner managed SMEs’) is that at the time they want to sell, there may not be many buyers or acquires around at the right stage. As most owner managers are actively involved in ‘their business’ , without a great deal of forward planning, they will have to remain involved in the business long beyond the sold date.  Even when he or she gives up day to day control, they will almost certainly be subject to an earn-out or deferred consideration.

Also, they will also face being an employee with a boss rather than an owner manager themselves.  This means that for many exit strategies, management succession is the top of the priority list, i.e. you must invest early in a strong management team. This is no bad thing, because having strong management will drive growth, and maybe even make them possible buyers as well.

CMC Partner have produced a 10 step checklist for improving your chances of a successful exit, it is available to download here.

Also to get the best price, an owner manager needs to ensure a maximum valuation for the on-going business.  The business valuation is dependent on many things, not least the likelihood of future cash flows.  Recurring income is the star item, as long as there is growth potential within it.   Whilst having recurring contractual income is great, it is the details that matter.  A 5 year history of a client consistently repeat purchasing is arguably more attractive to a buyer than a 5 year contract that includes onerous clauses is a red flag to an acquirer, i.e.  a clause allowing a customer to terminate because of a change of control.

For every sale, we need to think about an acquirer, and getting your business into their target sights.  Most acquirers prefer to be able to target specific businesses whether directly or through a search, preferring not to enter into a competitive process or auction. They want to minimise change in the target business while they take it over.  One point we always try and get a seller to thing about is how to get the messages to possible acquirers before they make an offer.   As part of an exit strategy, have you considered what will make you attractive to a trade or strategic acquirer?  When you have identified what an acquirer might find attractive in your business, you need to get your name out with some PR, e.g. exposure in national trade press, in online articles covering these areas with specific keywords or phrases.  Get your advisers researching possible acquirers and ensuring your business is on their radar.

To answer the question posted in the title of this article, the answer is ‘no & yes’.  If you have planned your exit strategy and done your research, and readied your business for sale, then you can sell your business in the next 6 months.  However if you have just wakened up to the hope that you want to sell your business (maybe you have had 1 too many disputes with your staff or customers), then yes you could sell your business at a heavily discounted valuation.  But why would you do that, get a better price by starting the ground work today.

Making the decisions required to plan for the sale or exit from your business is never a simple set of choices and you will need some guidance.   If you as an owner manger want to sell your business in the next 12 to 18 months or if you would like to explore how CMC can support you through your business journey, contact us via this form.

Advantages of Business Budgeting – Part 2 Strategy then budget

Your strategy must led the business budgeting process

In my first post on business budgeting I discussed the advantages of a collaborative approach setting out your budgeting process. I know from personal experience that a lot of staff in many companies view a budget as a bother rather than as a useful tool. If this is a problem in your company, it needs to change or it becomes corrosive and demotivating.

A budget should be simply a financial picture of something much more important, and that is the company’s strategy. The goals and objectives planned for the next one or two years will determine how the business is expected to perform. The budget – or forecast – should reflect the anticipated revenue streams and the resource costs that flow from these plans.

It follows that budgeting should be a dynamic and motivating process because it is a core part of enabling your strategy. Regard it as an opportunity for showing strategic leadership throughout the entire organisation. It is essential that the process involves as many people as possible, and that decision-making is bottom up as well as top down.

Demonstrate Leadership

Demonstrate leadership, and show that the budget is just one part of the overall implementation of your strategy. The budget should never be the ‘main thing’ where it takes on a life of its own. In many companies, the budget becomes a straightjacket, where managers are afraid to ‘go over’ their budgeted expenses. They feel they must chase budgeted sales at all costs. Initiative can be stifled and in such an environment it’s all too easy to become internally focused and blind to what’s actually happening in your market.

Throughout the company involve people in the overall strategy process so that everyone is motivated to develop a meaningful budget because they will each have responsibility for their own inputs and results. Have an open culture that encourages initiative because employees are assessed on delivery of goals rather than meeting numbers.

Such a process is obviously more challenging than one which typically revolves around the finance department sending out a bunch of spreadsheets. Allow managers to really think about how they can contribute to the strategy. Which means that they have to really understand that strategy. So the first requirement is good discussion and communication of goals and objectives.

If you require practical advice on getting to grips with business budgeting,  then fill out the contact form

Exit strategies – Management Buy-Outs (MBO)

Why do you need to consider exit strategies – well as an owner manager it is very likely that you have spent many years of hard work into making a success of your business.  Experience has taught many owner managers in the same position that this hard work can quickly count for little or nothing if your exit strateges are not well planned and implemented in advance of your actual decision to sell or step down.  There are several different exit strategies that CMC can advise on and help you as the owner manager get the financial results you deserve.  Over this series of blogs I will be presented some of these and will include some of the advantages and disadvantages of each.

This article focuses on MBO’s as a strategy to exit.

Management Buy-Outs (MBO)
MBOs are common for the owner managed business, in particular for those who are willing to pass their business onto the existing team that helped to make it a success. This route ensures business continuity and provides peace of mind for the employees and other stakeholders.

Generally a MBO arrangement will enable the current management team to acquire the company via an MBO vehicle which will prevent them from having to raise all of the necessary finance personally and to then repay it from their own personal taxed income.

We (CMC Partners) have considerable experience in negotiating and implementing MBOs, making the process simple and efficient (read painless) for all parties, i.e. the current and the new owner managers. We can advise either of the MBO teams, specifically advising the current owner on all aspects of the buyout, including finding finance, creating the MBO vehicle and liaising with HM Revenue and Customs.

MBOs are a complicated process and require careful planning and adequate support and assistance at every stage to ensure completion is as fast as possible and the results the best outcome for all parties.  The financial outcome is key, it is not only how much cash you may get, but also when is payment  made, , tax liabilities, who is funding the MBO, e.g. venture capital or private equity firms, and many more issues.

The benefit of a MBO
A MBO or a MBI (discussed in the next blog) is often the best case scenario for many business owners and in many cases is the most effective of the exit strategies.  This route has several significant advantages:

  • The existing management team understand the business, and already have experience with running it
  • The existing managers will have detailed knowledge about the business so negotiations may be easier, and the motivation to run a business may already exist.
  • The existing managers may not need to personally raise the necessary financing and it may not need to be paid from their personal taxed income.

Over the past 20 years CMC have advised many owner managers on how best to exit from their businesses. Phil McConnell himself has been involved in the sale of several companies in which he was a significant shareholder. Future blogs will describe the benefits others type of exit strategies, including MBI’s, trade sale and a company purchasing its own shares.  If you wish to discuss how you as an owner manager can get the results you deserve, contact us via this form.

How to get full business selling value

Much has been written about business and exit planning – but business selling is like selling a house. You don’t have much experience and can go horribly wrong as a result. You improve your prospects when you ‘know the ropes’ and are being well-advised.

‘Maynard’s three immutable laws of Business Selling’

You won’t find them in any book, but they all occur in some way during a business exit.

The Law of Shrinking Timescales:

The closer you get to selling your business, the more impatient and optimistic you become. Very often, business owners say that they are not in any great hurry, but as soon as preparations move ahead and negotiations commence, you may start thinking: ‘What are we waiting for? Let’s get on with it!’

There are great dangers in trying to accelerate the process. It can suggest that you are insensitive to the deliberations of the prospective buyer. It could also imply that you are hiding something. A suspicious buyer will reduce his valuation.

You must earn trust by not rushing things and by giving prompt answers to all questions and challenges, even if you feel that the buyer is ‘trying it on’.

If a potential buyer appears to be dragging his heels, an independent adviser can intervene, so that you do not jeopardise your standing in the process.

Some unintended mess-ups:

  • Company and Management Accounts improperly presented with mistakes
  • No record of regular Board or Management Meetings
  • Incomplete/inaccurate records of current shareholders
  • No updated order pipeline reportage
  • Infrequent/inaccurate P&L/Balance Sheet/Cash Flow accounts

 The Law of Increasing Avarice

The closer you get to selling your business, the greedier you become. It is human nature, isn’t it? Everything seems to be proceeding well; so why not go for a bit extra on the sale price. ‘After all, he’s not going to go away now, is he?’

Whenever that happens, there is a high risk of pull-out, so if you have good cause for re-opening negotiations, you must carefully weigh it against the risk of losing the buyer. And if you still feel justified, you should discuss with you adviser the best way to do it. Great care is required to avoid mishap.

A failure at this point will almost certainly result in a lower price next time around.

 Some unintended mess-ups:

  • Absence of clear justification for re-opening negotiations (e.g. improved forecasts)
  • Inadequate communication of request to re-negotiate the offer price
  • No clear sense of what higher valuation would be acceptable and why

 The Law of Emotional Wrench

The closer you get to selling your business, the more likely you will feel pangs of regret and insecurity. What will happen when your business has gone? Will the staff be well looked after? What will you do next? ‘The business was my only interest in life and now it is about to go….’

All entirely natural and understandable reactions, for which it is vital to prepare. For example, it may be possible to agree certain assurances on staff retention with the buyer. And you should start thinking about post-retirement activities where your skills and experience would be most welcome. There are plenty of choices – if you just take a step back and think about them.

But recognise one thing: once the business has gone, its future development belongs to others and you must move on. All being well, you should be able to retire comfortably and make new choices. After all, what is the point of working all your life if there is no benefit to be derived now?

Some unintended mess-ups:

  • Reluctance to communicate to staff what is going on
  • Staff look bewildered or unwelcoming when prospective buyer visits
  • Tendency to stall negotiations because of ‘fear of the unknown’

There are many examples of how the business selling valuation can be eroded, but they all tend to fall under one of the above core headings. Proper attention to these will enable you to maintain your asking price and resist downward pressure.

This is where an experienced and understanding business selling adviser makes a difference. It is not just about getting the process right.

See details of our next Webinar on ‘What’s your Business Worth’ via the following link: