Get Ready to Sell for More Money and on Better Terms
Most business owners have sizable portion (if not all) of their pension tied up in their business and yet have no clear idea or plan for how they are going to get it out and live the kind of retirement they’ve been dreaming of. You have worked so hard for the value in your business, so how do you avoid leaving money on the table?
I’ve personally been through multiple exits and acquisitions, including liquidation – so I’ve exited in the most painful way possible. I’ve started 5 businesses of my own (my first business I built to £4.5m in a little over 1 year) I’ve learned a lot of lessons including that you don’t get to exit your business on your terms unless you have it planned.
80% of all businesses that are “put up for sale” never find a buyer leaving the business owner feeling that they’ve worked most of their adult lives for nothing – yet there are more choices than selling to a 3rd party or just closing your doors
Over 40% of all business owners exit because of unplanned events that mean they aren’t in control of the way they leave their business – and neither is their family or the employees who are often left with a mess to sort out.
In family businesses, only 4% make it to the 4th generation……. Just think about that for a minute. You spend your life building something for your kids and a legacy – yet by the time your grandchildren come to be of business age there’s only a 1 in 25 chance they have anything left.
All of this relates to businesses that have done the hard work of surviving the first 5 years! Survival rates for business are scary – only 1 in 10 gets to celebrate it’s 10th birthday.
Are you in danger of letting your business fade away, with nothing but a lifetime of hard work to show for it?
It’s a common belief amongst business owners that they can just give a business broker a call when they are ready to retire and the broker will find a buyer in a few months. You start planning to be on taking your wife/husband on that lifetime cruise at Christmas….. But are you leaving money on the table? How do you know?
Most people go through one business exit in their lifetime – and the process is hard on many levels. Physically, emotionally and mentally. Then if you do find a buyer, its not usually a case of handing over the keys and getting the cash – many buyer want golden handcuffs so they can be sure of the value before you disappear into the sunset. You’ll be asked to hold back some of the money and stick around while having no control of the business you built from scratch.
Are you worried that you might die before getting the value out of your business?
V = P x M
The value of your business is based, roughly, on the Profitability and the Multiple.
Most people work on the profitability of their business as a matter of course because that what is usually paying you a salary an dividends. But the value of your business to a buyer is about more than that. Whilst profit might be the first indicator of value to a buyer, when they start doing their due diligence they’ll soon uncover risk factors and uncertainty about the future that will get them quickly reassessing their offer price.
Profits are invariably adjusted for a variety of “add backs” – this is where they assess the profitability based on market rates for employees, including the business owner if they are involved in the day to day.
The multiple is often misunderstood and can take on mythical proportions. In listed companies it’s a defined formula that is based on something called Price Earnings Ratio. In unlisted, private companies there is another general rule of thumb which is the profits divided by the net assets (so if your net profit is £100k and your net assets are £25k then your multiple will be roughly 4. Now that also assumes that all things are equal and there are no other risk factors.
The risk factors buyer look for include:
- Your systems
- Reliance on the business owner or key staff
- Organisation structure
- Consistency, reliability and repeatability of your products / services
I could go on – in short, the buyer is looking for certainty
What about the challenges?
Because if this was all easy and straight forward you’d be doing it already, wouldn’t you? Sometimes you know what outcome you want but you just don’t know the “how” or maybe the right questions to ask to get the answers and direction you are looking for. Put simply you don’t know where to start.
Sometimes being “in” your business means you can’t see the route to the big picture – after all, the day-to-day kind of crowds out any thinking time. And the added dimension is “its your baby” – that can mean it’s a bit harder to be objective about your role in it.
Getting insight into the current state of your business and the opportunities for improvement both in profitability and over all value is a good 1st step. It helps you figure out what needs to be done to get your business value to the best it can be.
On the journey you will need other experts involved. It’s important that you know what they would be doing for you and the questions you need to ask to get the best out of them. Too many business owners waste money on fees because of lack of clarity or understanding what’s needed. You need to be laser focused so the experts can help YOU get what you want out of your business and getting your business serving YOUR needs. Imagine your running your business and not the other way round???
Of course, this needs a mindset change – it’s not just the business that needs to get exit ready – you do too. It’s often the hardest part – letting go and getting out of your own way.
Jo Fairley – Green and Blacks – cried herself to sleep when she lost control of her company having sold it for £30m until her husband said “you can have control or you can have the money” – she stopped crying.
The other big challenge is overcoming inertia – to just start. The sooner you do the sooner you lock in the value of your company.
How much time do you spend in the business? and where do you spend it?
Usually business owners spend there time in 4 “places”
- Operations (the today) – where your salaried or employed staff also spend their time
- Support (back office) – this is overheads / cost
- Strategy (tomorrow) – this is where you are building the equity in your business and sadly is where many business owners spend the least amount of their time
- Culture (leadership) – this covers all the above and is an essential pillar of really high performing companies
One question is “what can you delegate for immediate impact on you, your money, your time and your energy”?
You only have 3 roles in your business:
- Generate revenue
- Improve effectiveness (leadership – continuous improvement – quality)
- Stay legal
What can you unload to feel lighter and have more time space energy and capacity to think clearly about your future? Because where you will be in 3, 5 10 years time will be directly related to where you spend your time, energy and thinking right now and for the foreseeable future.
The big question is how do you get started? Well one thing you can do right now – this minute – is go to www.businessmentoruk.com and read tips to improve your business value.
You can also get a detailed report on your business valuation within 24 hours (subject to the availability of your financial data) which will give you an indicative valuation for your business – it might surprise you.
And if you don’t do any of that then there is one thing you can do TODAY that will, if you act on it, have an immediate effect on YOU and your business – look at what you can delegate to enable you to focus on your 3 primary roles of generating revenue, becoming more effective and staying legal.