it’s not rocket-science
You’d be forgiven for thinking that just because, in the dim and distant past, I’ve sold a business, I’d have half a clue as to the pitfalls a budding entrepreneur would face when approaching such a task. And of course, you’d be wrong! This has been clearly shown to be the case over the last couple of months as Tibit positions itself to trade its soul in some Faustian pact with the investment community. Everyone talks of exit whereas I’m still on the ‘growing a profitable business’ page. But, with the availability of cheap money, acquisitive trade-buyers all fearful of missing out, and lots of private-equity cash sloshing around, there’s apparently never been a better time to sell a business, and it made me think of how I’d go about it, second time around.
So, you’ve built a great business, you’re enjoying yourself and reaping the associated benefits that go with that. It may be a family business you’ve grown over many years, it may be a life-style business that allows you to enjoy things outside of work, or it may be a relatively new start-up entrepreneurial venture that you’re keen draw some wealth & capital from. Either way you’ll want to maximise your value whilst ensuring it goes to a good home and continues unabated.
The first thing to say is that it’s OK to sell. No, really. Once upon a time (yep, my time) selling a business was more than often perceived as failure in that you only sold as a desperate last-gasp measure. Thankfully, these days that’s no longer the case and people do indeed start businesses with the pre-determined objective of flogging them. And why not. However, you do need to have planned for this and decided what you want out of it and what the business actually needs for it to continue to flourish. You also need to have some idea of when to sell, and who to sell to, or in other words, who on earth would want to buy it? Packaging & presenting a business which is going to be attractive to a buyer, or ideally, a number of buyers, does not happen on a wing and a prayer: preparation is key and you’ve got to get your act together, sharp-ish.
There are usually two primary concerns to this process, getting the books in order and ensuring your people are behind the idea. With regards to the former you need to know what a potential buyer wants to see and how exactly they’re going to be valuing the business. Net profit, gross profit, turnover, contracted/repeat, on-going, ‘spot’, or one-off revenue, stock, assets, cash, staff retention, goodwill, IPR, patents, trademarks, customer base and markets can all come into play and dovetail into building an attractive business proposition. The latter is of equal, if not greater, importance when attempting to ensure a successful transition. It’s vital to identify the important players and the effective team, and confirm, as far as is possible, their long-term commitment. This may necessitate incentives and rewards such as longer notice periods, new positions, bonuses & tie-ins, but they’re all going to be worth their weight in gold.
Finally, know what you’re worth, decide what your trade-ables are and appreciate the very different formulae that can be applied to the process of determining a tangible value to the business. Is it twice turnover, three times gross profit, five times net profit, or the height of the founder in cm squared & divided by the weight of his second child in lbs with two zeros added? All, and any can be used, but rest assured that whilst you’ll be using the one that maximises value, the potential purchaser will be attempting the opposite. Thinking of a quasi-Bill Shankley-esque truism, it’s not rocket-science, it’s way more complex!
In my own first experience I was firmly in the ‘a business is worth what someone is prepared to pay for it’ camp but I now realise that this is a moot point and it’s never set in stone. Furthermore, a business is worth potentially quite different values to very different organisations, such as a direct competitor, sometime wanting to get into your market, a supplier or customer, an investor, or a private equity firm, and different purchasers will potentially have very different future plans for the business. Surprisingly, the direct competitor is probably the one to approach last of all as they’ll know exactly what they want to pay, and it’s probably not as much as you will want to sell!
And even when you’ve found the right buyer, the deal is often far from done. Never underestimate the persuasiveness of the argument as each party is trying to make the other feel comfortable but there’s hard issues that need thrashing out: cash or equity, immediate or down the line, warranties & indemnities, which people and why. My final piece of advice? Upon pain of death, don’t take any of it personally, it’s business!