You only sell your business once, so you need to get it right!
In many aspects of our working lives, experience makes us more effective. We learn something from each thing that goes well, and often a whole lot more from things that go wrong. As our experience grows, we become better equipped to tackle decisions with increasingly significant consequences. However, there are a few situations where we do not have the opportunity to progressively develop our expertise, and the first experience requires major decisions that will have a profound impact on the rest of our lives. One such situation is selling a small business. For many small business owners, selling their business as they approach retirement will provide an injection of capital that can determine the lifestyle of their family over the following years. The sale price, and consequently the future lifestyle, will be very dependent upon the preparations that are made in the years before and the effectiveness of the sale process. The difference in outcome between best and worst scenarios is not just marginal, but truly life changing! So, what makes the difference between visiting your yacht on the Costa Brava and spending afternoons in Costa Coffee? The fundamental difference is preparation: it is never too early to start the process. These are the critical components of a good exit strategy:
1) Anticipate your exit options
What is likely to be the best way for you to hand over your business? A trade sale, to another business in the same, or adjacent markets? A Management Buy-Out by a current or future employee? Would the business be attractive to a financial investor? Would you like the business to be taken on by a member of your family?
2) Prepare the business
Having identified the preferred exit options, consider what aspects of the business will be important to those buyers, and how they can be developed to optimise the value. During the sale process the business will be subject to due diligence, so it is vital that all the records are consistent and complete. Ensure there is a clean separation of assets of the owner and those of the business. What is the succession plan? Who will be taking on the owner’s responsibilities in the business? How can you demonstrate to the potential buyer that the hand over will not have a negative impact on performance?
3) Identify the sale team
An effective and trusted team of advisers is crucial for navigating the sale process and reaching a successful conclusion. Whilst there is an understandable reluctance to incur unnecessary fees, establishing the team early is a sound investment. Some members of the team will not need to do significant work until the final stages, but having them engaged in the process provides the opportunity for early interventions that can save major costs later. It also helps to build good working relationships. The seller will be heavily dependent upon the advisers during the process: it is vital that they know they have the right people around them, before the going gets tough!
4) Prepare the sale plan
The detail of what happens when, in relation to both the sale process and the continued operation of the business. There should be flexibility built into the timing to ensure the start of the process can be delayed if economic conditions are not right, and the owner has the opportunity to walk away and start again, if the potential deal turns sour.
5) Brace yourself for a turbulent time!
Nothing can prepare the owner for the emotional roller coaster encountered when selling their business. Professionals will be making critical and derogatory comments about a business in which the owner has great pride. Ludicrous demands, with unrealistic time scales will be made. Just at the time the owner begins to believe the deal will be done – and should they start thinking about which extras they are having on the sports car, or contacting estate agents for details of properties on the coast – something apparently catastrophic will materialise, leading to a conviction that the deal will never be completed. In a process with such significant consequences the emotional trauma can never be eliminated, but the owner with a thorough plan and effective team will be supported through the tough times and more likely to reach a successful outcome.
David Brassington, CMC Partner for Cambridgeshire and West Suffolk, has first-hand experience of the emotions involved in business transactions, having lead a Management Buy-Out and subsequent successful sale. If you would like to have a discrete, informal conversation about the steps involved in preparing your business for a sale process, complete the form below.