This post was originally created on the 12th of April 2018.
When is the right time to start thinking about leaving your business?
Have you even considered it?
If you have, then do you have a clear strategy in place?
Would you even know how to go about realising your company’s true value?
In this blog we look at the 5 steps to a successful sale. For an FAQ-style post on selling your business, click here.
1. Give yourself time to prepare
The time comes when every business owner looks to move on. It might be that you have a new venture to work on. You might be searching for more balance in life. It could simply be retirement. Whatever the reason, planning your sale and exit is a necessity if you are to maximise the saleability of your business.
In the very basic of terms, a business is a 2nd hand item that you’re selling and you have to convince buyers of its worth.
If it was a car, you’d valet and service it. If it was a house, you’d tidy the garden and fix the minor repair jobs. If it was a piece of jewellery, you’d have its component parts appraised.
You do these things because you know it will attract more buyers and potentially a higher sale price.
Selling a business is clearly not on the same level, but the principle is the same. So for the chance to have a smoother sale and a higher sale value, why wouldn’t you spend some time preparing your business before you bring it to market?
2. Understand your buyers
To sell your business, there must be a corresponding buyer. Understanding which buyers are going to be good for you, and which are time wasters will help to direct your energies.
Imagine what information they will want to examine and ensure you have it. They will want to see your annual accounts, but what about monthly sales and overheads breakdowns. If regular client recruitment is a vital part of your success, which client recruitment strategies work for you. Have you got data to back up the claims you make.
Buyers will also want to know about the future. What you believe the future of your business will be. Can it still grow? What strategies you would be employing to manufacture that growth if you weren’t selling. What they are really asking is whether your business is scaleable.
A buyer will buy a business that has been successful but one which also has room to grow considerably bigger under their ownership will attract more interest. They will want the opportunity to scale.
3. Demonstrate your unique selling points
Buyers seeking to purchase aren’t looking for a carbon copy. They want something uniquely theirs.
Let’s think about the hundreds of HR consultancies operating in the UK. All advising on the same legislation, but the successful ones are those who do something different.
It might be the language they use makes the information more accessible. It might be that they deliver through a variety of online workshops. It might be that they specialise in one particular industry (e.g construction, theatrical). It might be a geographical monopoly.
Whatever it is, they have their own USP which means their customers come to them, not the competition.
Without a USP, your business can easily be replicated. A buyer devalues a business that can be easily replicated by a competitor.
Being able to buy a company with unique services or products, and a varied portfolio, will be more appealing. Buyers will be able to see greater scope and opportunity.
4. Can your business operate without you?
Is your business ‘self-sufficient’ in its current state? Consider your exit. A business rarely runs itself, people do. Those people need the capabilities, experience and training to do so effectively.
Now consider the buyer. They will be looking to see if those capabilities and that knowledge remains within the business after you leave. They will be checking that the business can continue to operate to the same level without your involvement.
If the buyer believes the key to the success of your business resides mostly with you, they will think it is a risky investment. And they could be wrong. The business may not rely on you, but you clearly haven’t demonstrated that fact clearly enough.
Map out a chart of employees and what each has responsibility for. You should also demonstrate the organisational systems underpinning the business. Have an effective management operating system that puts the onus on system control rather than any individual.
Buyers might insist on conditional offers, basing these on future business performance. If your business relies heavily on you, now is the time to tighten up your procedures. Start removing yourself from each decision process, spreading the responsibility within your company.
In the case of a HR consultancy we sold in 2020, the business owner had put time into preparation. Not only was there a 2nd in command who was well trained and capable of leading the business in the owner’s absence, there were also prescribed procedures for all the main aspects of the business. This offered consistency of service delivery in normal operation, but also offered consistency of service during the major transition of a business sale.
5. Prepare now, not when you’re ready to sell.
Consider the issues which have heavily affected business just in the last 10 years or so.
global recession and recovery
death of the high street (if the press are to be believed)
the surge of Amazon and other online retailers
No business will have planned for these events. Not all were predicted. Now add to this personal circumstances which may occur such as critical illness, accident, the need to care for a family member.
Not every decision to sell a business is planned and scheduled. A good many happen as a reaction to circumstances beyond our control.
The average business sells for 71% less than it should, with only one in five businesses making it to sale. If you build and work your business from now forwards, with the elements of sale preparation included, you will not be giving this away.
Sadly, we have far too many examples of business owners who have received a critical healthy diagnosis which prevents them from working to their previous levels. It is at this point that reality bites and whilst all businesses are still saleable, they don’t realise the full value they might have.
Whether a timeframe of your choosing, or a reaction to a change in circumstances, plan your exit as far ahead as possible.
Your strategy should include a timescale. Give yourself ample time to focus on any underlying issues in the business, tightening processes and ultimately adding value.
No matter how long you think it will take to sell your business, your preparation needs to be 2-3 times longer. You will want to have time for any changes to be reflected in annual accounts or contract renewals. Build in the time you need.
Whether long or short term the decisions you make today will affect the value of your business when you are looking to sell or plan your exit strategy.
And where all of this activity should start is with a business valuation. Why not see if you are eligible for our free business valuation now.