Corporate Finance Services for your Business
Preparing for your business succession
What makes a business more saleable?
There are the obvious attractions – rising turnover, profits and cash generation but I want you to consider the bigger picture…
On my webpage How long does it take to sell a business I wrote about the process. The preparation time; marketing the business and negotiating heads of terms.
When we market your business for sale it is vital that we just do not advertise it.
So how “well” do we sell it?
First of all, the flyer, or teaser document, is not a sale document. It is designed to attract potential buyers’ interests. So they pick up the ‘phone to call me to find out more information. With your permission a little more of the details of your business will be disclosed. Likewise, I would find out how serious the buyer is or whether it is just a “fishing expedition” on their part.
As a result there will be further interest and it is at this stage the Information Memorandum (IM) comes into play. It is important to provide the right level of information to attract potential buyers to come to a meeting. Finally, at this meeting the “selling” of the business really happens.
It is so important to understand where the buyers are coming from and what will be to their advantage and disadvantage. There are several motives a buyer will have and to receive the maximum sum for your business. We need to understand what these motives are and position your business to attract their attention.
This is the reason I like to be I those meetings since I can ask those questions and ensure you do not disclose too much. We need to stay on message and consequently it is important to keep the meeting as objective as possible.
What are the issues to attract a buyer?
There are the obvious issues to address which will attract a buyer once the IM has been addressed. These include but are not limited to:
- Historic growth
- Projected turnover
- Customer concentration i.e. lack of it
- An effective management team
- Recurring revenue
- Ability to raise prices
- Stable work force
- And so on…
It is easy to list these and many more. A lot of the points are common sense. It is, though, far more difficult to put them into practice. As a result of engaging someone like myself, it is possible to look at these critical success factors as part of our self-assessment of your business and look at it in a dispassionate manner to set about a plan to maximise its value.
In his book The E-myth Revisted, Michael Gerber refers to working in a business rather than on it. He says: “… if you work in your business then you do not own a business, you own a job.” “It is only when you start to work on your business that you start to own it.”
So why reduce the business’s dependency on you?
By allowing yourself time to think strategically about your business will result in adding value to it. The answers to the questions:
- Where it is now;
- Where you need it to be in the future; and
- How you will get there
will ultimately increase its worth by making it more profitable and more attractive to potential buyers.
You can look at the factors that will affect the value – the amount of time spent managing those will be reflected in the value you ultimately receive for your business. As a result of spending more of your time here and so reduce its dependency on you, will create a saleable business.
There are several things you can do here even if the objective is not to sell the busiess and to build one capable of being sold. Either a Management Buyout (MBO) or Employee Ownership Trust (EOT) maybe a suitable alternatives for your business.
Here are just some ideas.
Set aside time: Clients who have successfully sold their businesses have a clear desk.
In his book “Good to Great”, Jim Collins talks about getting the right people in the right seats on the bus. He is referring to hiring the right people who will compliment your skill set. Likewise, any person who is damaging the business should be encouraged in the proper way and with the help of an HR specialist to improve or leave.
Gerber talks about systems. He suggests an operations manual. It reduces mistakes, makes people accountable and facilitates the introduction of new people to your business.
Delegation: One client who successfully sold their business said this was one of his biggest failings. He said he did not appreciate enough the importance of appreciating you pass on the task not the responsibility for it.
Ideally you need to move from management to leadership.
- Management is about: Why does it take so long to answer the ‘phone?
- Leadership is about: What is happening in my market place? Who else is doing what? Are they doing it better than us? How can we do it better than our competition? What new products or services, territories, strategic alliances are there available?
The answers to these questions and putting in place the operations will take your business further ahead consequently making it more desirable to a buyer and enhance its value.
Some of the answers are fundamental to the business and for that reason will involve changes. Such changes cannot be made overnight. They have to be gradually otherwise there could be lasting damage to the business. Above all, they need to be in place so that a buyer can see their impact. It is no good putting something in place and not being able to prove the impact it has had.
Where do I fit in here?
If you were to ask me to work with you in say a non-executive capacity, then this would assist you in crossing the divide from management to leadership. By looking at the timelines, shareholders, managers and employees we can move the business forward. These matters are really critical in driving growth. We would look further ahead to where you can take the business and where the influences on the value for your business are to be found.
We would strive to create a business that is team and market driven. The team do the heavy lifting and run the day-to-day operations, while the owners are hands off. That is where you end up with more value.
As you can appreciate, selling a business in a smooth manner and at its highest value is as much about the owner being in the right state of mind as it is about changing from management to leadership.
If your goal is to have it in a condition where it is capable of being sold should you so wish is the same.
When you have set your mind to the task, then you can put the succession plan in to place.
I look forward to doing this with you.
Meanwhile you might like to return to the Overview of Selling your Business.
Andrew is the director of Assynt Corporate Finance Limited and an Accredited Member of the Association of Crowdfunding experts.
Previously a partner and head of corporate finance at Baker Watkin LLP, Andrew has more than 35 years of experience in all forms of corporate finance across many business sectors.
Andrew is also the Chair of Governors at a local school and an Assessor of Expeditions for The Duke of Edinburgh’s Award.
You can find out more and connect with Andrew over on LinkedIn.
Need Help? Contact Andrew at Assynt:
If you are serious about selling your business, contact Andrew to arrange an informal chat, in person or over the telephone to assess the options open to you.
You can also contact Andrew by email at: firstname.lastname@example.org or by completing the form on this page.