For most business owners selling a business will be one of the biggest decisions and events in your life. But if you are thinking about taking that step and parting with what is probably your biggest asset, there are three very important questions you must be able to answer first.
1. Is your company saleable and, if so, how much is it worth?
It’s probably the first question you asked yourself anyway but getting a straight answer on it can be more difficult than you would think. Of course, almost every business can be sold but what we mean by saleable is; will it attract the right kind of buyers with the right kind of offers?
Some brokers act a bit like unscrupulous estate agents, dazzling you with over-inflated and unrealistic valuations just to win your business. Make sure that any valuation you are shown is based on sound reasoning and established calculation methods.
Of course, any true valuation will take into account the other side of this equation… what is it that makes your business attractive to acquirers? Every business will be different on this score, so a simple straight comparison with another sale in your industry is unlikely give you a true reflection.
Entrepreneurs Hub offer a full business no obligation review, taking all of the factors into consideration to give you an honest valuation range and appraisal of your business.
2. How much do you need to walk away with?
This is an interesting question, and quite different from how much you want for the business or how much the business is worth. We call this your Lifetime Cashflow, or in other words, how much do you need to live the life you want after the sale?
The reason it’s such an interesting question is that, unlike the first question, it is often forgotten, and its value misunderstood. The reason this is so powerful is three-fold…
- Planning: Understanding your Lifetime Cashflow may impact the way you approach a possible deal. For example, needing more than you anticipated may mean you focus on growth before going to market. Needing less than you thought could mean more freedom to choose the speed and terms of your exit.
- Assessing offers: There are three ways to assess an offer; against a financial valuation, against what you think it should be worth, and against your Lifetime Cashflow. All three should be taken into consideration when assessing how well an offer measures up. If you don’t fully understand your Lifetime Cashflow, you will only have two thirds of the picture.
- Negotiation: Any training on negotiation will tell you that one of the most powerful tools you have is knowing when, and having the courage, to walk away. That’s great in theory but in reality this is a calculated risk and one that is made a lot easier when you are in possession of the full facts. Understanding Lifetime Cashflow is a key tool in understanding when a deal stops making sense for you personally.
This is just one of the reasons why getting really good wealth management advice is an absolutely vital part of the sales process. It’s not just about dealing with wealth once you have it, it’s about understanding value and planning appropriately. The good news is Entrepreneurs Hub work with some trusted wealth management and will happily introduce you understand your lifetime cashflow requirements.
3. What are you going to do next?
Another question you may have put some thought into is what you plan to do after the business is sold and is no longer your day-to-day responsibility. For some it will be as simple as more time to indulge your favourite pastimes, hobbies or more time with family. For others it may involve other businesses or charity work, perhaps mentoring the next generation of entrepreneurs and business leaders.
Whatever it is you want to do next; it is important to think it through before going to market. It will help you assess your Lifetime Cashflow, especially if you have expensive hobbies, but it will also help you deal with what is a major change in your life. Even business owners who are fully committed to a sale can feel it is a bit of a wrench, letting go of something you have worked so hard to build. Having a clear idea of what’s next will help smooth that transition.
If you are thinking about selling and would like our help in answering any of these questions, please get in touch and we will arrange a free, no-obligation virtual or face-to-face business review.