For most business owners, selling a company is a once-in-a-lifetime opportunity to hand over their life’s work. Many business owners have achieved their goals and aspirations and sold their successful businesses and headed towards a new phase in life. However, exit paths rarely ever run completely smoothly. Here are some useful pieces of advice from fellow business owners who have already sold up.
Sell before you need to
Many owners hold onto their business far too long. Some have been caught by surprise by market legislation changes or decline, others by competitors taking market share or key staff. All these reasons and more resulted in these businesses being less valuable and less attractive to the market. As a business owner, you are in the strongest position when your business is going well and you don’t have to sell.
Seek advice early
The likelihood is you may never have sold a business before, so understanding the process is key. What will drive value? What will detract value? What are potential barriers to exit? How do you position the company to maximise value and complete the sale as quickly as possible? The due diligence process is often more rigorous and intrusive than most realise and you must be ready for it. The holes are easy to identify but the cracks often concern a buyer, resulting in a deal protracting or failing altogether.
Make sure your deal is as frontloaded as possible
If you have explored selling, you may have come across the term ‘Earn Out’. During the process. you agree a value (sale price) for your business with a buyer. However, only some of the value is paid on completion - the rest is paid in instalments, traditionally with some conditions, based on the future performance of the business. Whilst earn outs can be risky, don’t discount them. They can be good for you, the vendor, especially if you are confident in your future performance and give your buyer confidence that you are also taking risks alongside them. If you outperform initial expectations, rewards may be even better.
Prepare in advance
You must prepare your business before you market it for sale. Reducing risks in the business will help maximise the price. The lower the risk, the higher the price. Spending a few months with advisers who know what is important is a worthwhile investment of your time and highly recommended. We often use the analogy of selling a car. Before you market your car for sale, most owners will ensure it’s well serviced and valeted. The same applies to a business.
Make sure you have an adviser who will work on the deal for you
Using an adviser enables you to concentrate on running your business while the adviser focuses on the sale. An experienced adviser will keep the sale confidential and drive the process towards maximum value. Most advisers work on a small retainer and take a percentage of the successful sale price to make their money. Therefore, both of your interests are aligned, ensuring the best possible price and terms are achieved. Your business broker should be able to create options for you, ensuring there is more than one offer on the table, providing you with a choice.
Selling your business is something you’ll probably do only once in your life, so get it right first time and talk to a team who will support you through the process.
Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.
Please note that where the opinions of third parties are expressed, they are not necessarily shared by St. James’s Place.