What’s the fuel that keeps your business firing on all cylinders? State of the art products? Superior service? Stellar reputation? Leading brand?
When you’re thinking about how to prepare to sell your business, be aware that potential acquirers could lower their offer or head elsewhere if they learn that the lynchpin of its success is, in fact, the owner.
Do you personally have client relationships that span the life of the business, or a significant part of it? Are other people in your business educated and empowered to make key decisions, or have you been reticent to delegate this? Does the knowledge and expertise your business readily draws upon exist mainly in your head, rather than on paper?
The answers to questions such as these should alert you as to whether your company is too dependent on you. The final blog in our series on how to avoid the pitfalls of selling a business is about how to mitigate the risk this could pose when you plan to sell up and exit.
What would the repercussions be if you left the business today? Here are 5 ways you can reduce that impact in the eyes of your ideal buyer and sell for maximum value…
Develop a strong management team who can run the business on a day to day basis
Consider how heavily involved you are in the day to day running of the business. In our free eBook How to avoid the pitfalls when selling a business we ask business owners:
“Who is responsible for the sales?”
“What about key client relationships?”
“Who runs your operations?”
“What about the development of new products?”
If you’re serious about selling a business, part of the preparation to do so must include the recruitment and training of a management team to whom you can pass the baton on aspects such as sales, account management, operations, product development and finance.
By reducing dependency on you and having a strong management team in place, you’ll make the business more attractive to a potential acquirer and that will enable you to exit the business sooner rather than later. If you fail to do this, why would a buyer offer you a decent price when the main USP of your business (you!) is about to exit?
Upskill others with your knowledge and insight
Exiting a business means delegating leadership responsibility to a well-informed team of management talent. However, sharing your knowledge and insight is just as important as the delegation of management duties.
From smart inventions to niche services, business owners who keep the secret ingredient of their recipe for success to themselves will not create an attractive proposition for acquirers. Weave that wisdom into the fabric of your business. Train employees at all levels across your company with your unique knowledge – from the office, to the warehouse, factory, studio, laboratory, and shop floor.
Chances are, processes have evolved while you’ve been running the business. Customer behaviour almost certainly has. There might have been seismic cultural shifts within the industry. Share this experience and the insight it has brought along the way, to help staff write the next chapter in the history of the business.
Don’t forget to document all valuable knowledge and insight, too! This is particularly important in smaller businesses where it might be impossible to have two people for every role. A buyer will be relieved to see that there’s a way for someone to pick up business-critical tasks if a key member of staff leaves.
Preserve client and supplier relationships with contracts and strong communication
As we pointed out in our blog How to get your contracts in order before you sell a business, your buyer could be worried that clients and supplier relationships might be negatively impacted by your departure.
One way to reassure them is to provide up to date contracts that protect the supply chain and key revenue streams e.g. where your business is the preferred or exclusive supplier. That said, a contract may only last so long if there is no genuine relationship and clear lines of communication fostered between your business and the external parties upon which it relies.
In the months leading up to your exit, you should also introduce and involve relevant members of your management team in meetings with key accounts and suppliers. Plenty of face-to-face contact will build relationships and help alleviate the worry and uncertainty that transition can bring.
Work with the new owner on a consultancy basis
Despite a painstakingly careful handover and diligent documentation, there are still times you’re your exit from the business will need to be an even more gradual process.
Where there is an intricately layered level of complexity around the operation of your business – perhaps linked to major seasons and cycles within the year – your buyer could be keen on you continuing to work with them post-sale on a consultancy basis so that they can rely on your expertise for that full cycle. We highlighted this in our blog How to identify your S.P.O.F.s (single points of failure).
Shelved projects that the new owner might wish to rejuvenate, long-term projects with a complicated history, and cases to which you’re inextricably linked are also scenarios in which your consultancy can benefit the new owner. By offering this you will be able to command a higher price.
And if there is shareholder dependency, it you will certainly need to be involved as part of the transition period.
Take some time off!
We saved the best tip for last. When was the last time you took a holiday? By that, we mean a genuine break where you weren’t answering emails from your sun lounger? Probably not since the invention of the smart phone or Blackberry, at least!
As you prepare to sell a business, you will be extremely busy, so taking a break could seem counterintuitive. However, being able to show a new buyer how well the business runs without you is evidence that your involvement isn’t the be all and end all its success.
Once you have efficiently delegated key responsibilities to senior managers and shared your knowledge around the company, you need not feel anxious about stepping away for a week or two here and there. It will be the ideal way to test how well your handover works in practice.
It’s also wise for your own wellbeing. A sudden departure from a business can feel traumatic for many people – understandable when you have lived and breathed it for all these years. Time off and head space to contemplate your next chapter is healthier for you and shows potential buyers what a healthy business they are about to buy.
There will always be a transition period when you sell a business but the less dependent the business is on you the quicker and easier it will be. Entrepreneurs Hub is a corporate finance company who can teach you how to prepare to sell your business – and achieve that sale successfully. Contact us in confidence discuss your situation, receive a guide valuation, and find out how saleable your business is.
Download your free copy of our popular eBook How to avoid the pitfalls when selling a business and visit our blog for more tips and hints.