Selling your business – begin with the end in mind

Selling your business or designing an exit strategy? What things do you need to consider?

As I start to accumulate more grey hair, and more completed businesses, I increasingly recognise that some ideas from decades ago still carry enormous weight in business. One of these principles was Stephen Covey’s habit of beginning with the end in mind. Stephen’s philosophy was that if you have a plan from the get go then you are more likely to achieve the goal you desire.

This applies quite nicely to exit strategies or selling your business. You need to start thinking about it before you even start your business. It is just a tragedy when I talk with clients who have worked decades in a business and only when they go to sell or exit do they realise that there is no saleable value in the venture. It’s like watching one’s superannuation or inheritance for children going up in a puff of smoke.

I will borrow a nice summary of questions from “Timeless principles of exceptional businesses” by The Alternative Board to help you consider some key elements in preparing an exit or business selling strategy. (The explanations are mine.) These are best worked on before you start your business but like superannuation, you can still get good benefit by starting later. Just don’t start when you decide to sell or exit your business as it is generally too late at that stage, unless you are exceedingly lucky or good!

Have a crystal clear understanding of who you are, what you want out of your business and why?

Points to consider include is your business you or a role you play so that when you are finished you can just pack up your toys and go home? Or is you business something more altruistic for society or your family. What are you in business for? Be clear on this and never forget your purpose.

Learn to look at your business as though you are a potential buyer or visitor.

I am working with a business that has been around for well over a decade and in the same premises. The first thing I noticed was the electrical fire risks. This had become one of those things people quickly just go used to and then put aside for more important things. When we worked out that there were also no circuit breakers (except for the servers), it suddenly become priority one. This is the type of ‘outsiders’ vision you need. Would a visitor buy your business if they saw it in it’s current state?

Give yourself plenty of time – measured in years not months, to prepare for an eventual departure: develop multiple options.

One thing I drilled to my managers when I was in charge of succession planning for the Australian Taxation Office was to ensure you had a plan b and even plan c. Often the person you banked on taking over a key portfolio wasn’t there when the time came. They could have gotten a better offer, reconsidered their options or even won lotto. It was imperative to have several viable people for critical roles. The same applies for selling your business. Have several buyers in mind. If you are considering passing to the next generation then have a few people in mind in case your chosen kin just doesn’t want to follow in your footsteps.

Have a succession strategy, leave the company in good hands.

Buyers are risk averse. They want to know that the money the give you will result in a business that continues on. This could include solid processes and procedures, contracts with key accounts and several good managers who will stay on. One true way of evaluating a leader is to see how stable things remain once they are gone. That is a true leaders legacy.

Seek help in the process, not just from the exit planning advisors, but also from former owners who have been through the process.

Selling your business or setting up an exit strategy can be quite emotional and leaders often aren’t comfortable with emotions. So seek counsel from several people to see how they transitioned and made the change.

Consider carefully the impact of a sale to employees and investors and gain peace about your decision before moving forward.

Remember that some employees may have been with you since the beginning.They may well be shattered if you don’t brief them properly and with appropriate support. Key accounts also need to be on board if you are to get a maximum payout or result.

Set a date in the future and allow yourself plenty of time to go through the full gambit of emotions including the nervous nellies or desire to stop the sale and remain at work.

Get a clear understanding of the buyers motivations so there aren’t any unpleasant surprises post sale.

I remember when I sold one of my ventures. I broke the business into two components. One had the machinery and the other the contracts. This meant that the trading name and everything vanished. It meant I got twice as much in the sale revenue but many were shocked that I could dismantle my business. To me, it was no issue. I was clear that  my intention was to take care of my clients and sell two businesses to two people who wanted two very different things. The only people who were surprised were a few friends who thought ‘I was my business’ rather than understanding that to me, my business was set up as a saleable asset from when it was first created.

Have a vision of your life following the sale of your business.

Businesses tend to be all consuming. Similar to someone who has been in a job for decades. There will be quite some changes post sale. So be sure you have plenty of plans that go more than six months. There are many issues affecting people who consider their post sale life as being time to travel and be with the grand kids. What happens after those first six months? Be sure you have several options and that you try or transition into these before you cut ties permanently.

There are lots of shocks when you exit or sell your business. However, if you begin with the end in mind and look at the above points, then you will dramatically increase your chances of having a great result and future life.

p.s remember to see a financial advisor if you do manage to bag a heap of cash as 5 out of 7 lotto winners end up where they started financially within 5 years!

Take care and God bless,

Peter Bender