People often ask me how they can sell their business. Here are a few guiding thoughts to support the sale of any business – small, medium or large scale:
Three different values
In order to sell your business, you need to be clear on the commercial value of the business, how much it is worth without you and its future potential.
As an investor or buyer, the first question I’d ask the business owner is how much the business is valued at commercially. It seems that you have had the right idea here with an independent valuation, but a potential buyer will ask for current numbers. This may be a case of getting your business valued again with more recent figures.
The second is how much of that wealth resides in you staying? If you are essential to the success of your business it makes it impossible for you to sell it and leave.
Ask yourself: do your clients buy a service or are they paying for you? Would your team walk if you leave? Are they committed to the success of the company or are they committed to you as a leader and Founder?
The next question is around valuing the future earning potential of the business (both with the existing owner and without it). Being absorbed into a larger Group or bringing in outside investors can grow your business exponentially.
Be clear however, most small businesses owners and outside valuers place too much weight on ‘future earning potential’. Future earning potential is a maybe and a complete unknown. It is not set in stone. Because of this it depends on the type of buyer you have and what is over value to them. A publicy listed company with a share price as an example puts a larger weighting on ‘potential future earnings’ and potential growth. A private business with Directors spending their own money will put a much smaller weighting on ‘potential future earnings’, because none of it is actually real until it happens which increases the risk for the purchaser in a business your size.
Know what you want
Perhaps you want to start a new venture. Maybe you just want your life back to spend time on other things you love. Be clear with yourself on exactly why you want out – you will discover the process with any potential buyer suddenly becomes a lot easier.
It’s tempting to be lured into a deal with a promise of a big cheque, but will that absolve you of the primary stress? Do you want to remain involved but minimise financial or resourcing challenges?
There are 100 different ways to cut a deal. The more open and honest you are with your buyer, or partner, the better off you’ll be at the other end.
The Equity Question
The next part to the puzzle is negotiating equity. Unless your equity is producing dividends each year, it has little value.
Don’t be precious about retaining every last percentage. If you don’t let experts into the business, you’re back at square one. Be open to a bit of wiggle room here.
Remember the bigger picture when discussing every finite detail of the sale. If you’re entrepreneurial, you’re likely keen to get another new venture off the ground. Spending hours arguing over every minute detail only stalls the process.
Thinking past the sale
It’s tempting to think you can walk away once the ink has dried. However, clever investors and buyers know the value the owner and their team hold in the success of the future of the business.
Quiz your potential buyer or partner about their onboarding process. How would they manage the communications to the team, stakeholders, investors and most importantly, your clients?
How would they earn the respect of your team? How would they get their buy in and loyalty? What systems would they implement or refine to ensure a smooth sailing during the handover? How long would they want you involved for them to take the reigns without affecting your clients?
The three types of people you want around you
The secret to personal and professional growth is only to surround yourself with people that either support, educate or inspire you. If your potential buyers aren’t teaching you something, supporting you to leave, or inspiring you to start something new – they may not be the right fit for your organisation.
At the end of the day, people do business with people they like. Don’t cut corners because you’re considering leaving. Do the right thing by respecting your business, your team and your clients – they are the people who got you here in the first place.
Imagine your life five years from now. Will you be proud of who you gave the reigns to? You want to leave the business knowing it has the best opportunity to thrive under somebody else’s Directorship. More often than not, that is someone you respect.