Many of us get into business because we want to build something that is ‘ours’ and is something we can feel proud of. We may have spotted a problem in the marketplace that we feel we have the solution for. Some of us start a business with the express wish to one-day sell and many of us find ourselves wanting to sell at some point even if it was not on our mind initially. Nick Brown (MD of Corporate Exit) has some advice:
“My number one piece of advice for entrepreneurs is plan your exit three to five years in advance. Most businesspeople are so consumed with the day-to-day running of their company that they leave their exit planning almost until it is too late. If you haven’t built your business to sell it then it will be that much harder to find a suitor….Track previous acquisitions in your sector. Take a closer look at what made that company appealing to the purchaser. You will start to assemble a good background understanding of the business that has been acquired”.
Nick goes on to say “your strategy should also include who you would like to sell your business to. Draw up a list of three companies that you feel would be an ideal fit for your own organisation. Then start to work out what would make your business attractive to those three companies.
Next, concentrate on building your business so that it delivers three years of healthy profits in excess of 25% per annum”.
Without profit it is going to be virtually impossible to sell your business. The preservation of cash in the business is also pivotal in impressing a buyer during the due diligence stage.
It is worth remembering that turnover is vanity, profit is sanity and cash is reality. Therefore, try and ensure that in the run-up to the sale you have conserved money and that your cash flow is strong.
While balance sheets and perceptions are both important in the valuation of a company, the success of a sale usually comes down to one thing: price
The process begins by establishing the expected underlying profitability of a business at the time of valuation. This is followed by an assessment of the risk profile of the business to determine the appropriate cost of capital or multiple cost of capital to apply. You may need multiple valuations depending on the buyer, nature of the business and the deal. Having clear books and records helps a buyer with due diligence, and you want to have years of financials readily available so you’re prepared for that unexpected offer. There are a lot of different business valuations companies, and you want to find one that’s reputable and specific to your industry, so they know your business and the cash flow
Once you have sold the business you will then have to answer that next crucial question: What next? While some business owners have a vision for what to do next, others may decide to take some time to figure out next steps. If you don’t have a plan, rediscover strengths and build your network to make a transition into something new easier.
CEO John West, Silver Oak Solutions says “When you’re an entrepreneur, it defines a big piece of your identity, and when that goes away, it’s definitely a transition,” … “I didn’t appreciate that after selling the first company, but you have to find something else to focus on.”