Time to sell your business? (Part 2)

Business & career advice with Neil Franklin

Following on from last month’s article, I am now going to cover some specific steps you can take when it comes down to preparing your business for sale.

Selling a business is a complex process and I can’t cover everything in detail here, so I am going to keep the process high level and the first thing you need to do is get some specialist advice as there will be some implications associated with the sale and one example would be tax!

You can talk to industry specialists, such as business brokers, your lawyer, accountant, and other specialist advisors…but as I always say, be careful who you take advice from as this is a specialist subject, and the stakes can be high!

Be Clear on Your Objective

It’s important to clearly identify why you want to sell – are you planning on retirement, do you feel that you need to do something else, or is your business in trouble?

When my first agency got into trouble in the late 80s/early 90s, my business partner and I very quick-ly found two investors who would back us in a new venture and while we clearly struggled with running a business, we had no trouble landing large clients and building sales teams.

We were no longer in control of the business, but we were incentivised to increase sales and profits through equity. After a few months, I left and form-ed my own staffing company, but my partner con-tinued, and the company eventually became listed on the stock exchange giving my partner enough cash to buy a then, champions league football club!

So, don’t be deterred if your business is in trouble, there are still opportunities to sell your business.

Who Can I Sell To?

Larger companies buy other companies to grow faster, among other reasons as it is a lot easier to buy a company that is operating in a space that they consider important to their overall strategy than start a division from scratch.

At the other end of the scale you have companies where the owners want to retire, and the employees believe they can take the company over and work-ing together, the existing owners agree on a strategy that allows them to be bought out over a fixed period. In this way, there is a smooth transition period which allows everyone to benefit.

And of course, you have investors who may not technically buy your business but would invest with the objective of growing and ultimately cashing out on their investments through an eventual sale, which can be a very effective strategy to look at.

But the important point I want to make here, is that you must put yourself in the shoes of the buyer and learn how to think – they are looking for the best deal possible, just as you are, so learn how to think like a buyer and research “how to buy a business” for example, to look at the process from the other side and perspective.

Finance, Legal and Compliance

Any potential buyer will want to go through your business with a fine toothcomb, so it’s important that your “house is in order.”

It’s easy to get side-tracked when you are grow-ing your business, especially if it’s a small one and things can slip out of control quickly.

Make sure your finances are up-to-date and you have management accounts ready as well as your audit history. Too many businesses do not produce regular management accounts and it is also essential to have a 13-week rolling cashflow.

Remember that cashflow is king and many profi-table companies go bust because they can’t manage the cash and it’s one of the first thing potential buy-ers will look at.

Legal and compliance are areas that need special-ist attention, so check that your contracts with sup-pliers and clients are up-to-date and are as water-tight as possible.

You may, for example, have a 3-year contract with a valued client, but a notice period on either side of 3 months. If I were a potential buyer I would value the contract at 3 months, because that is when it can be broken, along with the revenue.

I am working with a company right now where there are no formal contracts with key suppliers and delivery deadlines are being missed, so we are in the process of negotiating new contracts with pen-alty clauses for late delivery. If the company were to be put up for sale, this would be a key risk to the buyer.

Also, check that your insurances are in order and make sure you are aware of the small print. Many company owners, including myself over the years, fail to read the critical information, so be aware!

There are so many issues to cover here, so again, please take specialist advice.

Sales and Marketing

Many companies have excellent sales and marketing strategies, but they don’t document them and, in the business to business (B2B) world, they don’t have a company-to-company relationship – key relationships are with individuals and individuals have a habit of moving on, leaving your relationship in the hands of someone new, who may have their own suppliers.

In this world, do everything you can to build relationships at the highest level and right up to the top if you can, as it will give potential buyers a lot more confidence.

If you are dealing directly with consumers, as you would in the online world, then the value of your business is in your list of customers. Online bus-inesses can build huge lists through email marketing software and while this can look attractive on the face of it, many of these lists are full of people that will never buy.

A friend of mine in the US has an online business that uses social media advertising extensively and he is doing extremely well…but he is too reliant on the advertising and if anything were to change, then his business could change in a heartbeat.

He is looking to sell his business eventually, so he is also focusing on increasing his organic mark-eting efforts in conjunction with his paid advertising and this will, over time, increase the authority of his website with the search engines, which is great for potential buyers.

Finally…

There is so much to cover with this subject and it’s impossible to do so in a couple of articles and this is the final article for this year, which I have devoted exclusively to starting and running a business.

Next year, I will go more into the philosophy of entrepreneurship and especially in building the entrepreneurial “spirit,” which I believe is in us all!

 

 

 

 

 

 

 

 

 

 

 

 

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