Selling your business can be a major decision. When you have spent years or even decades building up your initial idea to a business of substance, value and further potential, it can be a real wrench when you finally decide to sell up.
So, when you have made that decision it’s important to get it right and approach the sale in the best possible way.
Where to start
Ask yourself the following questions.
Is there an exit strategy?
Ideally have an exit strategy as more of a long-term plan, giving time to lay down foundations and play to your advantages. But everyone is different – some business owners have a potential buyer in tow, some are owners looking to retire, some simply want out because they’ve done it for a long time and they want to do something new, while others want out for health or better work/life balance reasons.”
Have a realistic value in mind?
It can be hard to truly judge the value of a business and the owner of that business isn’t always the person best positioned to do so!
What main factors make a sale more likely?
A precedent of successful transactions within that sector, and not having a high shareholder dependency. A good trading history is important, as well as the ability to demonstrate that it is generally a well-run, well-managed business, with visibility of future potential.
What should be avoided?
No buyer wants a company that is too dependent on one person, such as a CEO or majority shareholder, as it creates too much risk. The ideal is a well incentivised second-tier management layer, as any business is more scalable if it’s not mostly driven by just one individual.
When you sell anything of significant value, you do everything you can to make it appear attractive to potential buyers and to get the best price for it. When selling a car, you might get it valeted, put it through its MOT and get any bodywork imperfections tidied up.
If you sell your house then you would give it a deep clean, you might decorate the most dated of the bedrooms and have a major declutter. You need to follow a similar process when selling your business – everything must be in order.
Any potential buyer will be interested in one main point: will the company continue to be successful and profitable when the founder has exited? Sellers need to work out the best way to demonstrate that.
You need to be able to easily hand over all the processes to the buyer
Process makes perfect
There is little doubt that better process makes any business inherently more investable. A business can be successful for many reasons – good clients, market-leading product, strong brand – but all are only made possible by how owners choose to conduct their business.
For example, good clients only come over time once you have perfected the sales process to attract the right type and spread of clients, and then nurtured them through the pipeline to close the sale. When the right processes are in place, a management team has the blueprint of a business and potential buyers can see how things should run without the founder, ensuring continuity as they exit the business.
Preparation is vital to helping that process to run smoothly. Technology can play a major part in getting your house in order. Selling a business can be a stressful time, but get it right and the whole process is much easier.
The earlier you start getting everything organised and in order, the sooner you’ll realise the endpoint, and the quicker the process will be overall.
The critical point of any deal is during the due diligence period. Traditionally across the M&A industry, up to 50% of deals can fall through at this stage. This is where the buyer will lift the lid and go through everything and a new level of rigour begins.
This stage can have a one to three-month window where momentum must be maintained – anything longer than this can result in deal fatigue which could see the deal slipping away. Where a business has transparent and well-run financials and crucially, processes, then buyers can relax a bit more and are more willing to commit.
The more a seller can show a buyer the better and while this can sound obvious it does definitely happen, trying to hide something about a business can be disastrous!”
Ask the right questions, define and stick to your process, and be transparent. While there will always be uncertainties when selling up, approaching the sale in the best possible way will help you to avoid a number of potential pitfalls.