The Importance of Planning – Time Can Be Your Friend
As I write this article, 3 of my clients wish to exit their business. In each case, they started to prepare well before the intended Sell Date’ specifically: 10 years, 7 years and 6 years. Why? Because they understood that to both continue to grow the value of their business, and also prepare to sell the business takes time, focus, discipline and hard work. The adage “Fail to Plan, Plan to Fail’ applies.
Correct Branding – Often Overlooked
The last thing you need when looking to maximise the value of your business is to retain any branding which states or refers to you. Why? Because you will be leaving, and the business will need to operate without you. If your business has any reference to your name, re-brand. And give the new brand time to bed in and gain traction. It can be hard to come to grips with this, but a brand that stands for the same values as the values that built your business has far greater longevity and value. After all, the purpose of selling or selling down is to extract the maximum possible fair value. I always address with clients the strength or otherwise of their brand, as a weak or personal brand will simply not yield the maximum fair value for a business when selling or selling down.
A Complete Operational Process and Systems Review
It is well documented that a major driver of business value is well documented and managed process and systems, run by top quality IT infrastructure and software. It is critical that any weak or outdated systems and IT infrastructure in your business are replaced, updated and can be shown to be operating perfectly or very nearly so. Why? Because the systems, processes and IT infrastructure allow the people in your business to deliver top quality service, day in, day out, and this generates sustainable profits, a higher profit multiplier than would otherwise be the case, and therefore a higher sale price for your business.
The Roles of Debt and Equity
Debt is the friend of the business if the business generates solid and consistent positive cashflow, so that debt can be controlled, used or repaid as needed. It is an error to view debt as a bad thing. Bank debt, when able to be comfortably used, controlled and repaid by a business has a simple agenda – i.e. use it for working capital, and either repay it, or use it in exactly the way that the bank allows. When this happens, bank debt is comparatively low cost.
Equity is different. Always remember that equity comes with an agenda. I have seen businesses wanting to prepare for sale having to buy out equity from a minority or silent equity stakeholder, and this can be both expensive and distracting.
If as a business owner, you want complete control or majority control, then use bank debt or your own cash resources to provide the working capital to your business that it needs. Remember also that in almost all cases, any shareholder or shareholding group that has over 25% of the shares within a business can block “important” transactions, and that certainly includes selling or selling down your business. A tidy balance sheet with no personal loans and complete ownership control means that your business will attract a better selling price, as there is almost always a premium that a buyer will pay for complete control of a business.
A Tidy Balance Sheet/ Achieving Full Control Before You Sell Your Business
Always purchase all shares in your business, or as many as you can. Doing this means that any purchaser for your business only has you to deal with, not a group of people. This comes back to the premium that buyers will pay for 100% ownership and control of a business, as they know that they have full control of their business futures when buying 100% of a business.
On Market or Off Market – What Are the options?
An on market Sale usually means that the sale of your business is advertised, and your marketplace and competitors can see that your business is for sale. There are a variety of ways to sell your business, but the single most important decision to consider is whether your sale or sell down should be on market of off market.
An off market sale can occur using channels that are not advertised to your marketplace or competitors. Examples of these channels are: major bank private banking channels, professionals with networks, and on market sales where advertising is blind.
The Private Banking arms of the major banks contain a large number of cashed up, high net worth parties who are interested in a range of businesses and business opportunities, and can purchase a business completely off market. Professionals with access to networks (bankers, lawyers, and accountants) can provide access to a range of genuine purchasers with the financial resources to complete a sale for fair value, in a prompt and professional manner. These channels can be a very useful way of gaining an excellent price, without the public scrutiny. Usually the only public exposure is when the business is announced “to have sold for an undisclosed sum”. In many cases, there is no public announcement at all.
Blind Advertising is used when exposing to the public or competitors that the business is for sale is undesirable, but for a variety of reasons the open market is an effective way to attract purchasers. Quite often this strategy is used because the vendor does not have access to off market sales channels.
As I write this article, 3 of my clients wish to exit their business. In each case, they started to prepare well before the intended Sell Date’ specifically: 10 years, 7 years and 6 years. Why? Because they understood that to both continue to grow the value of their business, and also prepare to sell the business takes time, focus, discipline and hard work. The adage “Fail to Plan, Plan to Fail’ applies.
Correct Branding – Often Overlooked
The last thing you need when looking to maximise the value of your business is to retain any branding which states or refers to you. Why? Because you will be leaving, and the business will need to operate without you. If your business has any reference to your name, re-brand. And give the new brand time to bed in and gain traction. It can be hard to come to grips with this, but a brand that stands for the same values as the values that built your business has far greater longevity and value. After all, the purpose of selling or selling down is to extract the maximum possible fair value. I always address with clients the strength or otherwise of their brand, as a weak or personal brand will simply not yield the maximum fair value for a business when selling or selling down.
A Complete Operational Process and Systems Review
It is well documented that a major driver of business value is well documented and managed process and systems, run by top quality IT infrastructure and software. It is critical that any weak or outdated systems and IT infrastructure in your business are replaced, updated and can be shown to be operating perfectly or very nearly so. Why? Because the systems, processes and IT infrastructure allow the people in your business to deliver top quality service, day in, day out, and this generates sustainable profits, a higher profit multiplier than would otherwise be the case, and therefore a higher sale price for your business.
The Roles of Debt and Equity
Debt is the friend of the business if the business generates solid and consistent positive cashflow, so that debt can be controlled, used or repaid as needed. It is an error to view debt as a bad thing. Bank debt, when able to be comfortably used, controlled and repaid by a business has a simple agenda – i.e. use it for working capital, and either repay it, or use it in exactly the way that the bank allows. When this happens, bank debt is comparatively low cost.
Equity is different. Always remember that equity comes with an agenda. I have seen businesses wanting to prepare for sale having to buy out equity from a minority or silent equity stakeholder, and this can be both expensive and distracting.
If as a business owner, you want complete control or majority control, then use bank debt or your own cash resources to provide the working capital to your business that it needs. Remember also that in almost all cases, any shareholder or shareholding group that has over 25% of the shares within a business can block “important” transactions, and that certainly includes selling or selling down your business. A tidy balance sheet with no personal loans and complete ownership control means that your business will attract a better selling price, as there is almost always a premium that a buyer will pay for complete control of a business.
A Tidy Balance Sheet/ Achieving Full Control Before You Sell Your Business
Always purchase all shares in your business, or as many as you can. Doing this means that any purchaser for your business only has you to deal with, not a group of people. This comes back to the premium that buyers will pay for 100% ownership and control of a business, as they know that they have full control of their business futures when buying 100% of a business.
On Market or Off Market – What Are the options?
An on market Sale usually means that the sale of your business is advertised, and your marketplace and competitors can see that your business is for sale. There are a variety of ways to sell your business, but the single most important decision to consider is whether your sale or sell down should be on market of off market.
An off market sale can occur using channels that are not advertised to your marketplace or competitors. Examples of these channels are: major bank private banking channels, professionals with networks, and on market sales where advertising is blind.
The Private Banking arms of the major banks contain a large number of cashed up, high net worth parties who are interested in a range of businesses and business opportunities, and can purchase a business completely off market. Professionals with access to networks (bankers, lawyers, and accountants) can provide access to a range of genuine purchasers with the financial resources to complete a sale for fair value, in a prompt and professional manner. These channels can be a very useful way of gaining an excellent price, without the public scrutiny. Usually the only public exposure is when the business is announced “to have sold for an undisclosed sum”. In many cases, there is no public announcement at all.
Blind Advertising is used when exposing to the public or competitors that the business is for sale is undesirable, but for a variety of reasons the open market is an effective way to attract purchasers. Quite often this strategy is used because the vendor does not have access to off market sales channels.
