At some point every business owner will need to exit. Some wish to spend more time with loved ones, focus on a new venture, or just take their foot off the peddle. Other times, people may have health issues, need more capital or believe a strategic partner could take the business to the next level.
The problem is, when it comes time to transition, many business owners lack a clear process to understand their options and achieve the outcome they deserve.
A crucial first step is to understand your motivations for selling your business, along with the preferred outcomes after the transaction is complete. While this step is often overlooked, it plays a vital role in the sales process. Like any strategic business move, the outcome is always shaped by your motivations.
This article is the first in a series of 3 articles on preparing to sell your business and achieving the best outcome.
To lay a good foundation for a successful business exit, your first priority is to take a sincere and honest look at what is driving your decision. Understanding the ‘why’ will help shape the decisions both you and your prospective buyer will make you move through the sales process.
People sell their business for a variety of reasons. We’ve found that there are some key triggers that influence the decision:
Before you commit to taking your business to market, it’s imperative to spend some time reflecting on your current situation and whether these (or any other triggers) are motivating your decision. Allow yourself the opportunity to be upfront and honest with yourself – if not, you’re more susceptible to making costly mistakes as you progress through the sales process.
It’s a given that any business owner will want the best possible price for their business. But receiving a high sales price may not be your only priority. Other factors which play a role are the urgency of the sale, the future health of the company, and how the business sale will impact your life going forward.
Here are a few common scenarios:
John’s wife has recently fallen ill and the prognosis is not good. He is struggling to remain focused on the business and needs extended time away to care for his wife. His motivation is now to have a fast sale and a quick departure so he can shift his focus to what’s most important in his life – to care for his wife who needs him.
However, there are implications to consider. Wanting to leave the business immediately could worry a potential buyer who may be relying on John’s expertise through the transition as the new owner finds their feet. This could lead to a smaller buyer pool.
Based on his motivations, John may be willing to sell to the first qualified buyer that comes along. He may be more willing to accept a modest sale price rather than hold out for a higher offer.
Peter has run his manufacturing business for 15 years. He’s in his mid-50’s and he knows he wants to exit within the next 3-5 years. The business is running smoothly, but as with any business there is room for improvement. Peter understands that this preparation will help him build value and ensure a better transition out.
He’d like to be selective with potential acquirers as it’s important to him that key staff are taken care of and the business moves forward the way he envisioned. With this in mind, he would also consider staying on for a period after the sale as a consultant or part-owner.
These two scenarios illustrate how your motivation to sell impacts both the timing and outcome of a business sale. In the same vein, if an acquirer was to understand the seller’s motivations it may be a key piece of intelligence that would influence how they structure their offer.
Having time on your side is favourable, as can be seen in the examples. When you have the flexibility to make your business more attractive, you can secure an optimal deal structure. But once again, this depends on your motivation for selling.
To make it easier to understand your motivations, we’ve developed a checklist.
Take a few minutes to run through it
You’ll see a list of the key triggers for selling (if yours isn’t there, add it to the list). Tick all the ones which apply to you and next to each scenario, decide how soon you need to take action.
After determining your motivations for selling, it’s time to establish what you want to accomplish after the sale. Don’t worry, you don’t need to have the rest of your life mapped out. Just begin by focusing on the initial 12 months after the transaction.
Can you see yourself staying involved in the business perhaps as a contractor, employee or part owner? Or are you ready to move on to a new chapter of your life?
Sellers will often agree to stay involved with the business to assist during the transition period to the new owner. Generally, this period can last between 3-12 months and is negotiated during the sales process.
To determine how involved you wish to be, ask yourself the following questions:
Do you want to walk away after you sell your business?
Are you willing to assist the new owner during the transition period after the sale? If so, for how long?
Do you still wish to be involved with your business after the sale, at a management level?
Do you want to remain involved with your business as a consultant or part-time employee?
Is it a priority to receive a full or large payment at the closing of the sale?
During this phase, be sure to talk to your loved ones about their expectations too. Some spouses have their bags packed and ready to be whisked off to Tuscany, relishing that they finally have their partner back to enjoy life with – only to be horrified that the deal requires their partner to stay on. It’s best to be on the same page with your post-sale plans.
You’ve poured your blood, sweat and tears into the business, it’s only natural to want it to succeed into the future. Your legacy matters. So, it’s important to think ahead. Ask yourself what you want for your business after the sale is finalised.
Are any of the following things important to you?
The business stays in its current location to reduce any disruption to your clients (and staff)
Selling the business to a key employee, family member, or someone you already know and trust
Selling your business to a key competitor, supplier, or another business (or deliberately not selling to them)
These answers will impact your ‘go to market’ strategy and the profile of buyers you will be putting the business in front of. Be prepared that saying yes to some of these questions may lead to a smaller pool of potential acquirers for your business.
Although, if you’re happy for whomever acquires your business, to take on the challenge on their terms, then perhaps the above questions are not relevant. This approach certainly provides the largest range of potential buyers and flexibility, but it may require a bit of internal compromise with your motivations to sell your business.
If you are unsure of your motivations or aren’t quite sure how you’d like to proceed, it’s always worth talking to an exit advisor. They are on hand to present different scenarios to you that you may not have thought about.
Making these decisions now may seem difficult. But they will pay dividends when it comes to proceeding down the sales process. You will come to the negotiations with a sense of confidence, and that confidence will lessen the road bumps that are inevitable in a business sale.
Our motivations drive our decisions in life, they are the whys of our behaviour. As important as it is to know your why when you start a business, it’s just as important to be clear on your why when it comes time to exiting.
“He who has a why can endure any how.” -- Frederick Nietzsche
The key takeaway is clarity - be crystal clear on your drivers for selling and look at their implications across key areas in a business sale transaction. These drivers will impact everything from your desired sales price, timeline to sell, level of involvement and your legacy post-exit.
Take some time to review our checklist, consider the triggers for selling and the outcomes which are important to you. Once you have established your ‘why’, you will be in the driver's seat to start shaping your own strategy.
Think about these factors before you speak to a broker or an exit advisor, as it can be really empowering as a personal exercise. When it comes time to speak to an expert, you will have a solid foundation for which direction you’d like to take, and they will supplement your decision with a wealth of experience from guiding many other deals over the line. They can build on your personal desires and create a targeted exit strategy which aligns with your selling objectives.
We weren’t born to business.
We were born to live life.
Your business should be a vehicle for helping you achieve your personal goals in life.
At Exit Advisory Group, we help entrepreneurs develop growth and exit strategies to maximise their wealth and provide options.
We do this by giving business owners the tools and strategies to design more profitable, efficient and enjoyable businesses to own - that are also less dependent on them. When they choose to exit, they are in the best position to unlock the wealth in their business and be rewarded for their hard work.
Download our free checklist - What's Driving Your Decision To Sell Your Business
It's a great first step towards planning for one of the biggest events in your life.
interested to know what drives the value of your business?
We invite you to take the Value Builder Score.
This is a powerful bench-marking tool that rates your business against the 8 key drivers of business value. Over 45,000 business owners worldwide have now taken this assessment.
The Value Builder Score shows you what your business looks like through the eyes of an acquirer. You’ll discover what’s silently dragging down the value of your business, or whether you have untapped hidden assets with the potential to increase value.
The great thing is, there’s no cost to take your score and it only takes about 10 minutes to complete.
If you would like to know more about how we help business owners like you, feel free to get in touch:
1300 133 540
Exit Planning | Maximising Company Value | Business Sales
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