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If you put your business for sale, when you want to exit, the chances that you get what you want for it are very slim. You should start planning your exit right at the start-up mode but no later than 3 years before you want to exit. The longer you wait the more disruption you will get in the sales’ process. Imagine how your people will react when they discover that you decided to sell your enterprise!
Disruption is a manageable process which can create significant opportunities to gain competitive advantage. To attract potential buyers you should take a long term view and strengthen your business to compete in very difficult and volatile market. It will require that you take “definitive” action and alter your strategy and find a new direction, which could lead to drastic changes.
Your strategies and plans for the longer-term (3 to 5 years), should focus on “building” internal strength and capability, enhancing supervisory, management, and leadership skills, understanding and maximizing employee engagement, optimizing your processes and systems, assessing your technology and reshaping the culture of your business.
The right mind-set:
Building a long term view when you are selling your business is counter intuitive, but if you want to attract the right buyer, you have to have the right mind-set to address short term needs demonstrating your business’ growth potential.
You have to address the day to day current market realities having in place a forward- thinking balanced strategy. Take necessary short-term actions while building capability and enhancing organizational performance for the long term. Just doing that will enhance the value of your business. Due to the baby boomer phenomenon there is a lot of businesses on the market and very few buyers. Only 20% of businesses on the market are selling in any 12 months. Being in a growing mode will differentiate you from other sellers. A potential buyer of a growing business can envisage getting a high return on his investment and then pay a premium for it.
Empower your organisation.
Your organisation may need to produce immediate cost savings to deliver better margin. You may, then, be tempted to reduce your manpower. However, there are a number of alternatives and actions that may produce the same result or at least a portion of the needed savings and not impede the organization’s ability to compete on the market.
Before making any drastic decision you should outline and assess each alternative. You should be thinking outside of the box, understanding the ramifications of each solution, preparing risk mitigation plans, and making more informed choices. You should prepare the business to run on its own and realise that you have to let it go and not being part of the execution plan. You should coach your leadership team, giving them ownership to execute those decisions flawlessly.
Recognizing that one process can never fit all conditions and must be adjusted based on the needs of the business, we offer the following process to aid you and your leadership team in dealing with the disruption of selling your business
Choosing the right strategies
Of the six steps, choosing the right strategies will make the difference for you, your family and your business. Evaluate the various scenarios you, your family and your business will face in the transition process. These will present you and your family significant challenges to address and for the business an opportunity to seize competitive advantage.
Personal challenges to address:
- Find out if your business is “sellable”. You can do that by taking the “sellability” score test it is free, confidential and will only take 13 minutes of your time.
- Create a business that has both an obvious way out for you, and is attractive to a potential buyer,
- Keep your family, partners, other directors and senior management happy with your decision, whilst minimizing tax liabilities, and making sure that you will have enough money left after the business is sold to fulfill your personal goals.
- Find the best way out of your business. Should you sell to a third party? Or should you transfer the business to a family member, if not may be to the management team or why not to all your employees.
- Find out how much a buyer would be happy to pay for your business. This will probably not satisfy your expectations; you will then have to put in place a plan to increase the value of your business before the sale
- When you have decided on the right buyer make sure they have adequate finances in place to pay for the transaction. If you sell the business over a long period of time you should also have plans in place to make sure the buyers will not go bust before the payment is completed
- And finally plan your new life. A lot of business owners after selling their business enjoy the first six months playing golf or doing things they never had time to do when they were managing the business but after that they get bored. They then start being a pain for their partners telling them how they should run their life! The partner will not like that. Did you know that the divorce rate amongst the retirees is one of the highest?
Business Opportunities to Seize:
You will first have to save money to finance the value enhancement of your business. Actions may include contraction, investment hold, cost reduction, expense deferral, consolidation, outsourcing, and asset divestiture. You will then be in a position to fuel the growth engine by expending in new markets, investing in new equipment and technology, recruiting new talents and up-skill existing workforce, finding a successor and developing his talent, as well as the ones of the entire team for a smooth succession , re-branding , considering asset acquisition, forming new partnerships.
Based on our long history of working with exiting owners, we offer the following options to consider. Engage your workforce in actions that may meet immediate needs, without detriment to enhancing your business’ value in a turbulent time.
- P&L and Balance sheet re-engineering: Explore alternative debt, tax and insurance structures/options to offset or minimize the cost of new programs to enhance the value of the business and its impact on the P&L, and/or balance sheet.
- Program suspension, product elimination, divestiture may require workforce reduction, you should consider alternatives to full cessation, to prevent your key employees to get scared and start looking outside and leave the boat when you most need them.
- Increase employee accountability/empowerment to run the day to day business and implement your strategy.
- Reconfigure the remuneration scheme of your employees. Reward loyalty, review delivery mechanisms, timelines of delivery, and mix configuration of total compensation
- Plan governance. Enhance overall fiduciary, compliance, and minimize exposure to risk, infuse a partnership culture through delegation and empowerment
- Optimize customer service delivery and maximize the cost effectiveness of delivering those services
- Establish a skill matrix, define future skills needs, and develop plans to close the gap between existing and required needs, taking into account internal and external supply and demand for critical skills and resources.
- Re organize your workforce, optimizing staffing requirements, during periods of disruption without resorting to redundancies.
- Optimize cost and risk management effectiveness by considering the global market, versus only the local or regional market, using new communication technologies
- Increase productivity. Focus on key employee engagement, performance, and align their individual goals to maximize collective efforts, resources, and outcomes
The Business Case
Derek owned a very successful consulting firm. He has two children. At 62 he decided that he wanted to exit his business within the next 3 years. He had owned his business for 18 years. He had no strategic business plan, no exit plan, and no tax plan!
A review of the business and personal assets revealed that:
- The revenue of the firm was £ 1 million
- The restated EBITDA was £170k
- The owner was taking out of the business £ 180 k per year.
- The company was valued at £ 600 k (3.5 times the restated EBITDA)
- He had other personal assets of £ 325 k
A strategic analysis of his business showed that Derek needed to:
- Develop a stronger mid-level management team
- Increase formal sales training
- Change reporting and accountability
- “Package” their services to capture market share
24 months later:
- The turnover increased to £ 1.8 million from 1 million
- The cash flow increased to £ 300 k from £ 170 k.
- He received several offers for his business, the lowest from the management team for £ 720 k and the highest from a strategic buyer for £ 1.8 million
During the Exit Planning Process Derek:
- Saved £ 180 k in capital gains taxes
- Developed an estate plan that saved £ 912 k in estate taxes
- Dramatically increased the value of his company £ 1,200 k
- Spent £ 76 K in various advisers fees.
Protect your best assets. Preserve roles that create and sustain value.
Clarify roles, work, key performance and rewards
Build sustainable internal and external capability and transfer knowledge
Invest in targeted high-impact training and develop action-learning that benefits both the employee and the business.
Reduce attrition while improving performance and creating a thriving culture of excellence, entrepreneurship, transparency and trust.
Set strategy and delegate implementation, control, and management.
Plan your life after business. This is a time where your leadership should be directed at developing a strategy and a new operating model so that the implications of today’s decisions are taken with full consideration and appreciation of long-term survival of your business, without you, and you enjoying a comfortable and fulfilling life after business.