OK so selling up isn't easy but there are things I can do - so tell me more?
In the previous article, the issues around mindset and preparation were considered. In this article, we get a little deeper in to the detail and think about the specifics.
1. Take advice!
This is a given. Or is it? There are many things to get your head around when thinking about such a significant step. The first is not just “how much money will I get?” but “how much money will I need at the end of the process?” There is a difference and that difference is primarily tax but don’t ignore the costs, direct (people will want to get paid to help you) or indirect (for example, distraction from other opportunities). So you need to see at least two people – an accountant with the skills and experience to understand the issues and advise accordingly; and a financial planner, preferably a highly qualified and experienced individual.
Perhaps you also need to see a third depending on your thought process. Ultimately, a sale needs a sale agent, better known as a merger and acquisition advisor.
Take them all through your thinking on your plans and listen to what they have to say; they will have great insight based on their experience with other clients, people like you. Ask them to review your position to tell you what you need to do now, if anything, to maximise the benefit of the future sale. It pays to act early as your options begin to reduce when you get nearer the deal.
Good advisors will assess other areas that you should evaluate, either in the business (employee retention and incentives, for example) and personal (insurance to protect your family, for example).
Ultimately great advice that mean you retain and utilise more of the net sale proceeds is a as good as gaining an equivalent improvement in the headline price.
2. The Management Team
Buyers want to buy sustainable businesses based on effective operational management; in your business, people are obviously your greatest asset. So with that in mind, is it time to review the individual roles that you personally play? There is often more than one. Going forward, can you delegate and do you need to recruit in order to make the business work as if you weren’t there?
There is of course, an alternative. You stay on after the event while the team is built around you to create the sustainability that it currently lacks. That process will inevitably be built into the sales value that you get for the business.
So you have a clear choice in relation to the question of sustainability and may be now is the time to review the strategy?
3. Your financial information needs to tell the story in detail
In the previous article, we noted that knowledge is power – so you need to be honest on the financial and business issues. You need to go further and detail is key. Is your financial reporting good enough to withstand the rigours of a third-party review? It may be good enough for you but will it be good enough for them? Detail and being on top of the issues instils confidence; so if it is time to upgrade your financial reporting, don’t delay.
To maximise your return, it’s vital to present the information as a buyer (particularly a larger corporate) would expect to see it, following typical accounting principles with clear audit trails and supported by insight. Then you can tell a financial story that will resonate. Most buyers talk in terms of GAAP (Generally Accepted Accounting Principles).
If you don’t currently audit your financial statements, consider it – clarity and third-party confirmation increases potential value. If there are issues, now is the time to identify them.
4. Take the risk out of the game
Human nature is such that we have a greater fear of loss than a desire for success. Consequently, a potential buyer will hate to make bad acquisitions more than they like to make good ones. So, the question is whether you can take action to remove the risk thus increasing the buyer’s confidence in the acquisition?
Yes, by performing a business risk audit. It can be an insightful and compelling exercise, adding value way beyond the sale proposition. It can also be a pain in the a***! No doubt about that. It takes time and it is distracting but it will add value.
A great example is around cyber security (how comfortable are you, scale of 1 to 10?) and another might be that new “old chestnut” of data privacy and the GDPR regs (it will figure in any ale discussion, for sure). There are lots of obvious other areas where risk can be ascertained and acted upon where necessary – customer contracts, tems and conditions, the website, leases, employment contracts… the list is potentially endless. However, all of these things are a business risk and need to be managed. Get it done and you will see the value both for the current business operation and for the ultimate value on sale.
No one said business was easy and in today’s world, it is not getting easier. However, the upside is that you can take action if you have a particular outcome in mind. If your ultimate outcome is a sale – short, medium or long term – now is the time to take action to increase the value of your key asset.