Being in an emotional position to sell a business can creep up on you like a thief in the night, most do not expect that they will sell the company.
Sometimes an owner will be thinking, debating and considering selling the business for months on end, sometimes it will be on the spur of the moment, something happens.
Maybe a new opportunity, maybe a life scare, a relationship breakdown, one too many staff problems or they are fed up with UK weather in January! We have all been there on the last one.
But when is the right time?
I personally believe that it is way before you get to that point, there are clever few folks who have the exit plan ready at the start of their business, but they are the rare few. These guys know exactly when they are going to exit and at what point, but if you are not one of these business owners then the timing can be daunting.
You have seen the years throughout your business of good times and bad, seasons changing like the wind and cycles after cycles accumulating to the point that you have had to navigate through certain winds and storms at different times and you sort of know what to do at each point.
I think the best time to sell is when you are on the up again, this is also where the buyer will also get the best deal, and I don’t mean the price but the position that you have left your company in for the new buyer. You will also get the best price and be confident that the price will hold during the handover too.
When the systems are in place, when the marketing is strong, the revenue and profits are coming in. The team are settled, steady and maybe one or two are ready for that promotion, in the athletics world, we call this peak performance and compared to all seasons, you would allude this to a summer season.
If you haven’t already, how do you start planning for an exit now?
To get the best price for yourself, you need to take a hard look at yourself and decide what type of business owner you are.
Do you work inside the business and essentially have a job?
Do you work on the business and have a team working in the front end, whilst you are behind the scenes?
Or do you have a management team in place running things, whilst you are on the outskirts helping with the navigation of things?
Ideally, the get the best price you want to be the third one, but that doesn’t mean you cannot sell at the first two levels, but you may need to be doing some work on the business and putting some systems in place to get to that level.
To get to the 3rd level if you really want to get there, I advise investing in a business coach or a consultant within your sector who knows how to help you get your results faster.
Here are a few things that would be essential to present your business to a buyer:
1. Financial information
Peter Drucker (known as the father of management) said: ‘whatever gets measured, gets managed.’
You will need to have all your numbers at hand which starts with:
- The last 3 years’ worth of full accounts
- Management Accounts
- Cashflow forecast
Key KPIs such as:
- Average order value
- Lifetime customer value
- Average sale price
- Conversion rate
- Customer retention rate
If you don’t know your numbers, this could be suicide for a business owner. Key KPIs are crucial to a business.
2. Paperwork
Making sure that you have your paperwork in order such as insurance documents, HR paperwork for health and safety, ISO, employees, etc…
Paperwork for the premises, any receipts for serious work that have been done to the premises or involved in the business, VAT Returns, Corporation Tax Returns and any other papers relating to HMRC. Any legislation to do with your sector that needs to be monitored or passed for compliance.
There is nothing worse than buyer a company that is a mess, this usually means that it is a mess everywhere and devalues the company to a potential buyer.
3. Operations, Systems & Processes
When buying a company, the purchaser is not just buying the profits but are buying your systems and operating procedures.
Everything should be documented in detail, whether that be in paper manuals, video training form or checklist (essentially all of them) so that it is clean and concise when taking over and everybody knows their roles because of the job descriptions that everybody has.
e.g. if you are selling a manufacturing firm, then there should be documented procedures for the operation of each machine including health & safety training at certain periods.
If you are selling an estate agency with property management, is there a CRM alongside a company checklist system that takes you from the point of finding a tenant to the move in for property management?
All these efficiencies are crucial to a business handover and make your business a much more attractive business to sell.
Automation & AI now also fall under this category, have you invested in intellectual property that makes you different to your competitors and coded in any automation into the back end of your CRM? What happens if your staff are off sick or a prolonged period, these things are key.
Sales process is also a key element, is there a clear process for finding customers and bringing new customers to the table.
A well-oiled business machine makes it very attractive for a business buyer as the company is stable, works without you and is therefore more easily scalable.
Lastly, I want to finish with:
Personal Readiness vs Business Readiness
Above is all about the readiness of a business, making your business a profitable financial enterprise that works without you, however, are you personally ready to let go?
Have you thought about this?
What timescale are you on? Have you been mulling this over in your mind for a while or is this spontaneous? Does your life partner know about this, and have you discussed it with them?
What will you do afterwards, have you thought about this? Will you be bored? Would you want a job, or an equity share as well as still working fully within the business? Maybe you just need the cash for something and wanted a partner for the business? There are no real rules, but these are crucial things that you have get settled within your mind so that you are ready to let go of your business, which essentially could be your baby to someone else.
If you have any questions, concerns or just wanted to find out more then get in touch at scott@sjacquisitions.co.uk
