So You’re Considering Selling Your Business?

The introduction and first chapter from my book "Making Plans For Business Exit"

If you’re reading this book then you probably own a business and have already started thinking about exiting, whether you intend to exit now or at some time in the future.

Of course you might be setting up a new business and you’ve heard me or someone else say that it’s never too early to start planning an exit in which case you’re definitely on the right track!

In either case there are plenty of options for someone intending to exit a business that can range from passing your business on to the next generation through to floating on a stock exchange. Some owners will eventually choose simply to wind their business down and shut up shop and if this is part of a plan then that’s fine.

Having an exit strategy defined and planned is important because it can help define the success of your business.

In his book the Seven Habits of Highly Successful People Stephen Covey talks of beginning with the end goal in mind. Stephen Covey was talking about people’s personal lives but the comment can equally be applied to a business.

Exit strategies can vary from a simple aim of milking the business for earnings and dividends and then running it down through to flotation via an Initial Public Offering (IPO). Along the way there are goals to transfer the business to family, to the management team or to sell to a third party. As the “Baby Boomer” generation, a large number of whom have naturally gravitated to business ownership, reach an age where business exit becomes a short term aspiration, many are finding that the next generation are less likely to want to follow them into the family business and so alternative exits are being forced on them.

No matter which end goal you eventually choose I can’t stress enough the importance of knowing as much about the process as you can and planning your exit as early as possible in order to make an informed plan.

Going back to Stephen Covey, he goes on in his book to state “Stop setting goals. Goals are pure fantasy unless you have a specific plan to achieve them”. Again this is true in business and having a goal to sell your business one day is not enough on its own unless it forms part of a plan.

A plan will give you the best chance not only of crossing the finishing line but also of maximising the value of your business when you sell it or otherwise exit.

As a business transfer agent I meet business owners every day of the week who want to sell their business. Sadly in my experience more than three quarters of owners haven’t given it enough (sometimes any) thought until they make the decision to sell. Consequently many will end up being disappointed when their business either fails to sell or achieves a price below their expectations.

The aim of this book is therefore to give an industry insider’s tips to business owners in order to help them to achieve an exit from their business at a time of their choosing at the maximum price and with the minimum stress.

Whether you’re considering a sale or other exit right now or at some stage in the future this book will help you to:

• Understand the importance of an early exit planning strategy
• Understand how your valuation is arrived at and what you can do to increase the value and sellability of your business
• Understand the business sale process so that you can stay one step ahead of your buyer
• Increase your chances of selling first time and to the right buyer
• Avoid an agreed price with a vendor being renegotiated downwards during the due diligence process
• Widen the appeal of your business to include more buyers so that you will have competing bids when you sell rather than relying on one or two buyers
• Remove potential obstacles to selling your business
• Avoid having to take on unacceptable deals, including dreaded “earn-outs”

I will also aim to dispel some of the myths surrounding business sales and provide a caution to the unwary concerning some of the practices of so-called professionals in the market place.

No two businesses are the same and each business sale is different. However, over the years my colleagues and I have seen the same mistakes made over and over again and in many instances these could have been avoided with more foresight.

Many business owners simply don’t know where to start when they decide to sell their business and others never even consider the possibility of selling and simply close down, potentially missing out on a final bonus from the sale of the business. Again this book can help.

Finally the book is not a panacea and doesn’t come with a guarantee that your business will sell. I’ve seen statistics that suggest that that only a small percentage of businesses being actively marketed will actually sell.

I can’t speak for the whole market but can say that probably about half the businesses that I take on as a business agent where the owners are seeking a sale to a third party will be sold.

Reasons for the other half not selling are many and varied but will include the seller changing their mind, and the price expectation being too high. A small number are sold by another broker (not many as I will not usually take on multiple agent sales) whilst a number of business owners will tire of the process and give up and close the business down before a buyer can be found.

This book is written in two parts, the first half dealing with exit planning and early stage considerations in selling a business. The second part takes over in when the decision to sell is taken and is a practical look at the issues involved.

At the end of the book I’ve summarised some of the main tips with what I hope will be a quick reference point for readers.

I hope that all the contents of the book will be of interest to business owners and their advisors and whilst each part can stand alone, they are best read in conjunction with each other.

Follow the guidance in this book then I guarantee that your chances of selling your business will definitely be greater than if you don’t follow the advice.

If you think that what I say in the book makes sense then formulate a plan and take action. Leading business guru, Tony Robbins says “A real decision is measured by the fact that you've taken a new action. If there's no action, you haven't truly decided”. Do take a decision and take action, even if the first action is to find someone to help you to put together a plan.

As a result the value of your business (and therefore the amount that you receive for it) will be greater when you exit - and possibly a lot greater!

Chapter One: Why sell Your Business?

There are many reasons why business owners choose to sell their businesses. Some of the reasons are deeply personal, while others are financially motivated. In almost every case selling a business comes after many years of blood, sweat and tears, which is why exiting a business can be a difficult and emotionally draining process and not one that a business owner will enter lightly.

Below are some of the more common reasons why owners sell businesses, and the ways in which those reasons might impact future buyers.

Retirement

There is perhaps no more common reason for exiting a business than retirement. If a business owner plans on retiring and has no one to whom he or she wishes to leave the business, it is likely that he or she will seek out a new owner to benefit from the business rather than just winding it down.

Long established retirement businesses are popular with buyers as they tend to have established clientele and may well still be operating at peak profitability, whilst the owners may simply be looking to enjoy their golden years in peace and therefore selling for the right reason.

An advice to business owners intending retiring is not to leave it too late so the business starts to slide. This is easy to say and a lot more difficult to spot “at the coal face” but the value of the business is sure to slide even more quickly than the results if this happens.

Business Plan Sales

Some business owners actually plan to sell their company from day one. Starting a business, running it to a point of profitability and then selling is a good way to “flip” a business and turn a profit. Alternatively rather than starting up a business the owners might have bought a business that was in a rut and turned it round.

These businesses are often pricey, as the initial owner has laid the groundwork to make sure that the business is attractive to a buyer or to investors.

Business Plan sales are not exactly rare, but they are encountered far less often than many of the other reasons for selling.

There is invariably a ready market of financially oriented buyers looking for this kind of business and they don’t stay on the market for very long.

Burnout

Owner burnout can be a powerful motivator when it comes to selling businesses. Many owners choose to start a business without knowing how much work is involved. After a few years of working round the clock, some owners simply decide that it is time to pack up the shop and move on.

Owners who no longer have the energy or drive to run a business often look for business buyers who are willing to take the business as is, and they rarely want anything more to do with the business after they move on.

These can be difficult businesses to sell for obvious reasons, not the least of which is that the seller is hardly the biggest advocate of their own business at this stage.

Illness/Personal Issues

A devastating reason for owners to sell businesses is an illness or other personal issue that will force the owner to have to leave the business itself. Such circumstances might include:

– A long-term illness

– Death/illness of a loved one

– Mental health issues including stress

– Divorce/marital problems

Any of those issues can cause an owner to have to divest him or herself of a business, as he or she simply does not have the ability to devote him or herself to the job any longer. These businesses can often be quite profitable, as the sale has nothing to do with how well the business has been run.

One of my most satisfying sales took place after the unfortunate sudden passing away of the business owner.

Fortunately one of the late owner’s daughters was able to step into the breach and continue to run the business and indeed resolve a couple of issues to ready it for sale. In the end it was sold for something like 40% more than my original estimate but we had made allowance for higher bids and so the late owner’s family were able to benefit from his hard work.

Cashing In

Often a business will represent a large proportion of the owner’s wealth. A sale can therefore reduce the inherent risks associated with having all your eggs in one basket, thus allowing the owner to diversify the risk across a range of investments.

For family businesses selling a business can provide the answer to a difficult succession issue.

Business Under Performing

There comes a time at which a business owner knows that his or her business simply is not performing up to the level that it needs to perform.

If that owner knows that he or she cannot guide the business to increased sales and profitability, then a better option might be to try to sell instead of shutting down the business entirely.

It’s difficult to sell a business that is underperforming but not impossible — after all, some businesses simply need an injection of new blood and new ideas in order to become successful. Still, selling a business because the owner is losing money (or not making enough money to justify the effort) is an incredibly common reason for the business to go on the market.

If you do sell a business because of its poor performance then you will have to accept that the price you’ll achieve won’t be as great as you would get if you sold it in good health. Effectively you will be a distressed seller and buyers will take advantage of this situation. I will cover this aspect in some more depth later in the book.

This is the introduction and first chapter to my book, which can be found on Amazon through this link.

Alternatively if you would like to discuss your business exit strategy, business valuation or selling your business then you can call me on 01908 904555 or email me on mainsworth@emfgroup.com and I'd be happy to help you.