Saturday, September 23, 2023

Prepare yourself and your business for a sale

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Shreya Christina
Shreya has been with for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider team, Shreya seeks to understand an audience before creating memorable, persuasive copy.

Specialized in governance, strategy, finance and M&A. Author & experienced external director. Kona Advisors LLC.

Recently, a networking group asked me to provide advice on how to help their customers prepare to leave their business. Most private business owners are rarely involved in a transaction. For most, the only trade they pursue is their final exit. That means they lack experience in what may be the most important decision of their career.

After thinking about the successful – and unsuccessful – exits I’ve seen, I shared this with the group:

1. Set clear goals. What defines success?

Success is usually determined by a combination of time and money. If the goal is to retire with financial security, what exactly does that mean? The better scenarios are when the owner knows their “walk away” number, the after-tax revenue that will be in their bank account when the dust settles. This usually requires some financial planning, which is the first of a number of professional services required for a successful exit.

The money is the easy part; planning the next stage of life is a little more difficult. How do you want to spend your time? Do you want to stay active in the company, but to a lesser extent? If not, how do you plan to fill your days and have a purpose?

As with many things in business and life, it is often best to start with the answer and work back to the present to chart a course forward.

2. Understand the different types of buyers.

The universe of potential buyers is large and complex. Each has its own investment criteria and parameters for managing their acquired assets. In my experience, while strategic buyers are thought to pay more, they don’t need to put capital to work through acquisitions. Financial buyers are just that: people who often overlook the seller’s legacy priorities. Things will be different if you’re the platformer or if you’re just a bolt-on acquisition.

Smart salespeople take the time to be educated so that they are fully informed before making irreversible decisions.

3. Get your house in order, including accounting, human resources, and business processes.

The general rule is that if there is a problem that needs to be fixed, you can fix it yourself and get paid for it, or the buyer will lower the price to make up for it by repairing it yourself. The two biggest discounts are often due to having an incomplete management team or no defined growth plan. These are the riskiest problems a buyer can solve. Due to the increased uncertainty of both, the discounts are likely to be greater.

4. Provide a full management team.

Even if you have a complete management team, you need to motivate them to get the deal done. The first question everyone asks once the rumor mill starts is, “Do I still have a job?” The leadership must be proactive in getting the talent needed to get through the transaction, as well as have a communication plan ready for when the rumor mill needs to shut down.

A “residence bonus” is an effective way to keep your management team focused on running the business and executing the transaction. Simply put, set aside a small percentage of the proceeds to allocate to the people you need to make it happen. It should translate into a meaningful percentage of their annual fee to keep them focused.

5. Have no regrets.

Most people change their lifestyle after making money from their business. After six months, they might have bought a new house, car, jewelry, or any other material possession. The major overseas trips can continue the first year. But eventually all of that settles down and life returns to normal, but with more ‘things’.

Then reality begins. Over time, you forget the details of the deal or how much money you actually received. Then you start to focus on what happened to important relationships and how life has changed.

This is no time to be sorry. A large pile of money usually does not compensate for the loss of critical relationships, carrying a flawless legacy, or experiencing unhappiness for a lack of purpose and fulfillment. Plan ahead. It often takes three to five years to build a new life. Start early in case you need one or two reps along the way.

The sales process is exciting, challenging and always exhausting. It feels like you are running an ultramarathon, with a 440m sprint at the end. Most sellers assume that once the ink dries, they can catch their breath. But that never happens. It’s the start of another marathon and sprint process, but someone else sets the pace.

The deal team becomes your second family. While it may start with a financial planner, the sales process will be driven by the investment bank or broker, and it will then be centered around the lawyers. Advisors may be needed for financial, market, regulatory or environmental concerns. The chemistry of this team is just as important as the rest of your management team.

While some of these suggestions may seem daunting, forewarning is key to being prepared for the uncertainty of the process. Above all, understanding what is going to happen before it happens and having the right team around you is the best way to get the result you want when selling your business. Business Council is the leading growth and networking organization for entrepreneurs and leaders. Am I eligible?

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