Almost every small business owner dreams of the day when he can cash in his chips, buy that swanky town house in Chelsea and enjoy the good life. Ok, the town house in Chelsea might not be to everyones tastes (or budget, even after selling your business), but the reality is that however successful your business might be, you will not unlock the full financial benefits of business ownership until you sell. Despite the fact that unlocking the capital inside their business through a sale is an almost universal goal for small business owners, precious few start ups ever make it all the way to a sale. Of those that do, many small business owners end up tied to what is now a job in somebody else's business. The dream of bags of money and the freedom to enjoy it has turned into the nightmare of working for someone else in your own business.
There's a reason why so few business owners sell their businesses at all and why even fewer sell their businesses successfully. It's because it's hard to do a deal at the best possible price and to remain free to do what you want to do at the end of the process. These objectives often come into conflict. And don't rely purely on your adviser or broker to help you out. Their prime interest is to generate fees and commissions, so it is not a good idea to abdicate responsibility for what is, for many small business owners, the most important deal of your life. The question then becomes what does the small business owner need to do to achieve the best possible price for his business whilst retaining their personal freedom? The following considerations are crucial in successfully reaching the end of the journey from start up to sale.
Even on the way down, there might be someone, probably a competitor that will want to asset strip your business at fire sale prices. If you expect to realise fair value for your business, never mind the premium you should be seeking, make sure you are selling on the way up. Most buyers are looking for a "sustainable business". That means that your business needs to have most or all of the following characteristics:
If you are seen as integral to the business you have got very little chance of getting a sale at all, much less of extricating yourself from the business. As Brad Rosser says, "if you want to sell your business, shoot the entrepreneur!". You either need a partner that is planning on staying on after the sale or an effective management team.
Naturally, you think that your business is fantastic but it is crucial that you have realistic expectations if you wish to take this forward to an actual real rather than hypothetical sale. Buyers naturally wonder why you want to sell. If this business is really as fantastic as you say, then why are you selling it? You need to be realistic. Your small business is probably relatively young without a long record of attractive profitability. The core business should be fairly robust but opportunities for further growth are just that: opportunities. Your buyer will be concerned that these opportunities will never come to fruition and will thus be reluctant to pay a premium for potential. They will expect your young business to experience a few ups and downs in the coming years. They will expect a discount for any potential downs but will expect the ups for free as an upside of the deal for them. They will also be reluctant to allow you to fully extricate yourself from the deal and will never fully trust you if you even suggest that this is what you want. These facts and the beliefs of your potential buyers will have implications for the deal which you will need to consider throughout the negotiations.
The adviser that you work with will inject a dose of realism into the the process and this is useful. If small business owners push for terms that are unrealistic or too greedy they will destroy the chance of a successful deal. Sometimes, the business owner can be their own worst enemy.
A good adviser will be your right hand man (or woman) throughout this whole process. However, you need to tread carefully as the smaller the business for sale, the smaller the pool of good advisers. that aren't entirely focused on their own self-interest. What you will often get instead is high fees with as much as possible paid upfront on the promise of imminent riches with no effort at all on your part.
You will want to meet as many advisers as possible in your industry and price range. You will want to know:
These personal relationships are what will be the greatest asset that an adviser can bring to the table. It's probably not reasonable for them to know everybody but they should have established relationships and respect in their industry.
So, you've chosen your adviser. What next? Follow the following process to the end of your business journey.
So remember the goal: a sale and a fair deal for all. Be practical and honest to get the deal done and let the competitive tension you create reveal the fair price. Selling your business will be one of the most difficult things that you ever do. Creating a business that is truly valuable is even more difficult. Continuous Business Planning exists to help you from wherever you are all the way to the end of the road: the sale of your start-up business. Call us today to ensure you are on track to realise the full fruits of your labour as a small business owner.