Grooming your business for sale

To get anywhere in business, you need to know where you want to end up. Concentrate on your personal objectives, and your business objectives, in order to prioritise your business strategy and make sure that your business grows so it’s in a good position for you to sell at your chosen endpoint.

Most business owners keep the notion of selling their business in the back of their mind until it’s too late to make a good job of structuring and preparing it for sale. It can take at least five years to make a good job of grooming a company for sale and maximising the value of the business. By including some preparation for selling your business in your current planning, you can avoid some of the pitfalls and make your business attractive to potential buyers without having to delay your plans to sort out problems that only appear when it comes to selling your business.

What to Look at

Finance – Does the business have a good financial record? Buyers prefer a record of smoothly increasing profits with good growth potential.

Strategy – Are strong, credible plans in place with realistic strategic goals?

People – Are the basics in place to make the business attractive? Buyers like well-organised businesses with a strong management structure, and succession lined up.

Sales & Marketing – Attract strong business development people, who will stay with the business. If you’ve been the only source of new business, and you want to leave, buyers will shy away.

Processes – Is the business a streamlined operation, with simple efficient processes which will continue to operate as intended under a change of owner?

You need to look at your business through the eyes of these buyers – they will want the business solely for its asset value. Some things will undermine the sale or reduce a potential sale price, others will add a premium. Treat the money you spend on making necessary changes to boost the company’s asset value as an investment, much of which will be repaid in the increased selling price you receive in the end.

You will also need to create a strong team around you when it comes to selling your business. Your current accountant or lawyer may not have the experience you will need when dealing with the due diligence that surrounds selling a business, so take note of possible contacts and networks where and when you can.

Grow your start up business

As an owner of a start up business starting to grow, what would it feel like to work with your local CMC Partner? 

Well, let’s start with what it doesn’t feel like.

  1. We will not want to collect a lorry load of financial data – most small businesses that we start working with are desperately short of the right information. The book keeper is hired to do the VAT Return and the Annual Corporation Tax return – they have never run a business and don’t know what is needed to manage a business. We will highlight the most important information for you and your business.
  2. We will not work on Business Plans when your concern is about paying the wages and the suppliers next month. The Business Plan can wait! Get the monthly accounts right and the sales pipeline and a few other key pieces of information and do a Business Plan when you really understand how the ‘numbers’ in your business work for you.
  3. We are not dictators – we don’t tell you what to do – equally we are not wishy washy. We work the issues through with you. Based on facts we will get your understanding and we will jointly agree the actions.
  4. We will not want to spend your money. It’s important that your money is used wisely to generate the cash flow, helping move your business forward. In most businesses the cost is in the people and we will work with the people you have. Small adjustments in roles and responsibilities can make a big difference to next months’ figures.
  5. We will not wear rose coloured specs in looking at your people. It is a very difficult thing to have worked with someone for a number of years and for the business to have outgrown their skills. ‘Square pegs in round holes’ cause a massive amount of stress, not least to the individual. Releasing people who are no longer right for a growing business is tough, but invariable the rest of the team can move on at a pace and not be held back.

Don’t think about us as being experts in your business sector – more often than not we will not be familiar with your business sector. We are interested in what you know about your business sector.

If you are relying on us to know you won’t be able to afford us! If you don’t know you will be bust pretty soon.

A good Non Exec knows you, the Business Owner – not the business sector. Your Success is Everything.

So, what do we do?

We add value by helping you to make your business decisions on topics such as:

What are your  revenues – margins – overheads – profits – cash collection – key accounts – sales pipeline value– reputation – good will – business processes – sales ability – account development ability – negotiation skills – terms and conditions – business procedures – key people – recruitment of people – motivation of people – etc etc –

These are the bits in your young, growing business that can easily be overlooked as you rush to get the next order away or answer the next customer enquiry. A couple of hours a month – ‘on your business’ and not ‘in your business’ gives you the quality time you need to think about your business.

Talking to your local CMC Business Partner means you are sharing 23 years of experience having –Your Success is Everything.

Call us now on 01491 285181 for a free confidential appointment

Maximising Your Business Value

Many business owners are primarily concerned with the day to day functioning of their business, and ensuring it generates sufficient income to cover the operating costs and meet their personal financial needs. This is of course appropriate, but it is also prudent to consider the inherent value that they are building in their business. Whilst they may not have any immediate plans to leave their business, creating sustainable, transferrable value is a long term project – and an effective insurance policy in the event they have to stop running their business earlier than anticipated.

So what are the factors that enhance the value of a small business?

Succession Planning

This is often the most significant item when considering the transferrable value of a business. Many small businesses are totally dependent upon the owner, who has exclusive knowledge of critical processes and retains control of all major decisions. There is a saying that an effective manager will work themselves out of a job. This is particularly true for the owner – manager. If the business cannot operate in the absence of the owner, its value to a potential purchaser is very low. The objective should be to move to a situation where the business can continue to perform in the absence of the owner: which requires the establishment of an effective management structure. There is of course a cost consequence associated with the development of the organisation, which must be factored into the growth plan for the business. When successfully implemented, the owner has the freedom to enjoy time away from the business, and concentrate their efforts in work on those aspects or projects that provide the greatest personal satisfaction.

Predictability of income

One of the biggest uncertainties associated with the acquisition of any business is future performance. How reliable are estimates of future income? Continuing, long term contracts or “rental” type income are the most valuable, as they are most predictable. If the business uses this type of model, maximising the number and duration of such contracts will add to the value. In other types of business, being able to demonstrate a consistent, positive trend in income and the accuracy and reliability of forecasting will provide assurance to a potential purchaser, and therefore enhance the price they will consider paying. Ensuring that the business is not heavily dependent upon a limited number of large customers will reduce the potential risk associated with future income.

Accuracy of business information and documentation

Part of any acquisition process will include a due diligence exercise, where the company’s information and documentation will be scrutinised by external professionals. It should be remembered that from the purchaser’s perspective, any difficulties identified could cause them to abandon the proposed purchase or seek to renegotiate the price. It is therefore in the seller’s interest to ensure that all aspects of the business will stand up to rigorous scrutiny. Whilst some problems can be rectified in the preparations for a sale process, others cannot. For example, it is not always possible to obtain cover for a historical gap in evidence of adequate insurance. It is therefore important that on a continuing basis, all information and documentation is prepared and retained such that it can withstand external scrutiny.

Demonstrating the security of any essential business components

Many businesses will be dependent upon some type of limited resource. It may be a particular raw material where quality or quantity are, or can be, limited; the business may be reliant upon the scarce skills and knowledge of particular employees; there may be an item of equipment that would be difficult or costly to replace. No business owner can control external factors, but it is important to be aware of these vulnerabilities and take whatever realistic actions can be taken to limit their potential impact.

There may be other aspects that are particular to individual businesses, but the important point to recognise is that many of these “value enhancing” factors are associated with the day to day operation of the business, rather than a specific exercise to be taken immediately before starting a sale process. There are many examples of business sales that either fail, or result in a value considerably lower than the expectations of the owner because the necessary preparations have not been made, or started at the right time. In those situations where the proceeds of the sale are the owner’s pension fund, the impact on lifestyle can be literally life changing!

Maximise your business value

CMC Partners have extensive experience of working with owners to maximise the value of their business. We have found that it takes a minimum of three years to ensure the average small business is effectively prepared for a sale process. The earlier the preparations start, the more effective the outcome. To arrange a free, informal conversation with David Brassington to consider the implications for your business, call 07837 903180.

Recruiting strategy for small business . . .

Most small businesses have plenty of market to go at – they typically serve markets in which they have very low market share.  Broadly speaking, staff in small businesses are already busy – they follow the example of the owners and tend to work hard.  But, while busy, staff are not always doing work that is appropriate.  It is quite common in small business for skilled people to end up doing work for which they are over-qualified.  So, growing the business means releasing your more senior people to do the work to which they are better suited and bringing in juniors to back fill the admin and the more routine tasks.

Fortunately, this is a win/win scenario.  By freeing up your more able people you can expect to deliver increased productivity, either as a result of more efficient use of their time or by enabling them to do business development work that will lead to incremental revenue. And, secondly, you are hiring at the lower end of the salary scale, so the fees and the risks are also reduced. This model also has the virtue of creating a “built-in” succession strategy.

One of the pragmatic lessons you learn, and routinely re-learn, working with owner-managed businesses is that the people are key.  So it is better to get the right person – someone who is a natural fit with the team – than be too pre-occupied with the percieved best practice of job descriptions and people specifications.  You should still go through these steps but if you find someone who has real talent – then you need to be prepared to be flexible.

Conversely, hiring senior people to the “top table”, especially those with a corporate background (no matter how brilliant their cv), is fraught with challenges and risks – and fails more often than it succeeds.

Whenever you can, grow your own.  They will be more loyal.

Sales

How do you scale your business profitably?

As a business grows and expands so does its associated needs. These needs have to be managed correctly to achieve long term success.

Our top tip for you to remember is your business will not be able to grow successfully by doing everything yourself. You are not a superhero, no matter how much you wish to be! You will not be able to scale up your business whilst carrying on doing the same role as you did when you started off. You need to give some of your work to other people – delegate.

Over the last 25 years we have grown many small businesses into profitable businesses. Read how we worked in partnership with a design agency owner to double the turnover in 4 years. Read the One Ltd Case Study

Using our experience we have compiled a few pointers to help support your business growth avoiding the common pitfalls.

1. Team Leaders /Middle Management

At the start up phase of your business you undertake every job. As your business grows further and you take on additional staff, you still need to monitor every function. However when you grow beyond 10 employees, it becomes too complex for you or your founding team to keep managing all staff members. At this point you face a choice – to continue trying to run things directly, and risk spreading yourself too thin, or to recruit a middle management or team leader level.

If you decide to continue as you are then you will limit the growth of your business. You will be overworked, stressed out and likely to make poor decisions.

If you don’t like the idea of your business becoming too hierarchical, you could promote a team member to a team leader. These team leaders can then take some of the day to day decision making and staff management load off your back, as they have the collective expertise to consider all aspects of an issue and take broad decisions.

2. Internal Recruitment/Promotion

We would always recommend you look internally when delegating or recruiting. Is there anyone internally capable to handle the day to day operations and lower level management issues who has the capabilities, skills and enthusiasm?

The advantage of internal delegation or job changes are endless – they understand the vision, part of the culture, no delay in settling in, motivating for the staff member, demonstrates career progress within the company. Of course, if there’s no one suitable then you may need to think about recruiting externally.

3. Effective delegation

As a small business owner, it can be emotionally difficult to step back and delegate. You need to allow your management level/team leaders to use their judgment and avoid saying things like ‘I wouldn’t have done it that way’.

To ensure this is effective you need to think about:

  • What work/decision/responsibilities you are passing on
  • What type of people do you need
  • How are you going to select them – internal or external
  • Does this involve job changes/description/pay increase
  • Train and develop
  • Set objectives, measure the output and give appraisals
  • Decide on appropriate level of ongoing reporting

4. Knowing where you add value

Setting up a one or two team leaders will take the pressure off you, allowing you to effectively delegate the day to day operations. This will then allow you to slot into the role where you are adding the most value to the business – this is often a higher level role that make you direct money such as the sales/marketing function or relationships with customers.

Whatever you focus your time on, make sure you enjoy it – else it will become a burden.

5. Monitor closely your cash flow

With an increase in staff costs you need to increase your sales to finance your team. You need to focus more now on business development, marketing, client profiling and pricing to increase your sales. This is where many of our clients struggle and how CMC can really add value to business owners. We can mentor, coach and support owners in their decision making, providing them with the knowledge and skills required.

Cash flow is the lifeblood of your business. Ensure you keep a close eye on your cash flow on a daily/weekly basis. A cash flow forecast will give you a good idea of how much money you have coming in and out of the business. Click here for tips on how to tighten you’re your cash flow . Growing too fast and not having the cash flow to support the growth will have a negative effect.

6. Raising finance

If your cash flow is getting tight then act quickly before it’s too late. Ask your bank manager before you need it, instead of when you need. Banks hate surprises!

Too many business owners we talk to have been disappointed in their efforts to raise cash– but often this is because they’ve asked the wrong people the wrong question. It is crucial that you are clear about why you need to raise money and then match this to the right type of funder.

Click here to read our raising finance guide to help provide an overview of your options and the process.

If you wish to grow your business but find the above daunting then please do get in touch as we will be able to help you increase your profits. CMC have partners throughout England, giving you a local adviser in your location. All our partners have hand on experience of running a business as they are all running their own business within a business.

Call us on 01494 829181 to arrange for a free confidential appointment at your business or in your local area.

Case Study – Turning a Reactive Business to Proactive Business

CMC is helping this successful business to position itself for significant business growth, reduce risks, plan for the future and – when he is ready – provide the founder with a comfortable retirement.


The Challenge: 

  • –Introduce effective business skills
  • Broaden the customer base
  • Change a reactive culture to planned, strategic growth
  • Enable the founder to retire from a healthy and expanding company

The Benefits: 

  • –In six months, sales have returned to £2.3m and profitability is now at an all time high.
  • Directors can now focus on strategy and long term planning
  • Profitable new revenue streams have been identified
  • Clear lines of responsibility
  • Key strategic risks were assessed and steps identified to minimise impact on the business.

I had my doubts, but CMC’s approach was totally different. They are prepared to listen and learn about the company and don’t just expect us to take a standard, off- the-shelf solution. Mark Parsons – Managing Director of IRS Limited 

Download the full story….

For details on how this engineering company achieve business growth and identified profitable new revenue streams….

Case Study – Raising Finance to Help a Dream turn into a Reality

The Story of a New Business Start Up and Raising Finance

By recommendation, CMC was approached to help a qualified lawyer turn his business idea into reality. This entrepreneur highlighted a niche business to help unsigned musicians and bands get recognized through exposing their music to fans, with the use of contests, voting and social media.


The Challenge:

To produce a compelling business plan

  • To raise finance
  • Recruit a team
  • Provide guidance with key decision

The Outcomes:

  • Secured external finance of £750,000
  • A skilled team including operations manager, finance director and marketing manager was successfully recruited
  • The business started operating within a month of receiving the finance
  • CMC’s advice gave the business a great start and the company is still going strong

CMC

Raising finance can be a challenge…

Download the full story to find out how CMC used their network of contacts and conducted research to identify potential investors…

 

Case Study – Successful Business Sale and Secure Retirement

Successful Business Sale to Provide Secure Retirement for the Directors – Graefe Ltd

CMC provided expertise, experience and guidance to the capable directors in successfully selling their business for a price beyond expectations.


The Challenge: 

  • To sell the business
  • Achieve sufficient capital gain, allowing comfortable retirement for the directors
  • Complete the sale within 2-3 years time frame
  • Little disruption to the operation of the business

The Benefits: 

  • Increased business value, allowing directors to retire comfortably
  • Exit/sales process completed within 2 and half years
  • Quick and efficient transfer of business ownership

When selling a business, finding someone with the knowledge is important but finding someone you can trust is paramount. We trusted CMC and we knew they were on our side. It was not a process they applied to us, but a journey that we took together. Brian Baker – Former Managing Director of Graefe Ltd

Download the full story….