Selling your business can be an emotional experience. You may have spent years of blood, sweat, tears and money building your business and the thought of selling it to someone else is almost too difficult to comprehend. Reality is there will come a time to exit and the thing to keep in mind is that to maximise the result you need to control the timing of the decision and the process as much as possible.

Unfortunately, for many business owners that decision is taken out of their hands. A sale is either forced upon them by some life trigger event or they decide that they have simply ‘had enough’’. In both cases it is likely that the value of the business is negatively impacted by a failure to have the business sale ready.

To maximise your exit position it is essential to: plan ahead, minimise risk and protect value. This will maximise the overall monetary outcome available to the owner at the time of exit. 

This article will explore these issues and a range of other factors that impact your decision to exit, the value of your business and the exit process.

Before we look at the ins and outs of selling your business, I need to explain why I feel so strongly about properly preparing your business for sale and why it’s never too early to start.

My foundation belief is that a business should always be sale or investment ready. Why? Because you never know what might happen in life that forces or motivates you to sell.

It could be a major health issue, loss of a key staff member, divorce or an unsolicited offer to buy. In each of these cases having a business that is prepared for sale will help you to:

  • protect the value you have created;
  • maximise the opportunity [or minimise the downside]; and,
  • protect your financial future

To be clear, having your business ready to sell doesn’t mean you are necessarily planning to sell. Rather, it’s about having all of your ducks in a row so that if something unexpected happens and you need to sell [or are forced to take some time off] then you stand the best chance of maximising the result because you are prepared. Think of it as a key risk mitigation strategy.

If you would like to know more about being ‘Sale Ready’ as a means of protecting your business value, then please follow this link to my article Protecting your business value.

Some home truths about business sales:

From the outset it’s worth establishing some of the truths about business exits:

  • Little preparation is done, and many owners don’t control their exit timing
    Many business owners are not ready for their exit and incur the costs.
  • Selling is an emotional process
    Selling can often be a reaction to other issues in the business. Planning and taking the time to reach a considered decision can pay dividends in the end.
  • Strong exits take a lot longer than people realise
    Properly preparing a business for sale with the intention of maximising the returns can often take one to three years – planning is essential.
  • The business may not be worth what you think
    Understanding the value of your business from the beginning is essential for planning your future
  • The business may not be worth what you paid
    Unfortunately, this is a common scenario and illustrates why understanding the current market value of your business is essential
  • The market has moved, and many exit opportunities have changed
    Think newsagencies, taxis and many retail businesses where the industry has moved completely. In addition, many banks have changed their attitudes to funding business purchases. Understanding these factors helps you make an informed decision.
  • Family succession may not occur
    The reality for many family run businesses is that the next generation are simply not interested in taking over. With that option closed what are the other options?
  • The business may be worth more without you in it.
    If a purchaser believes that the business cannot run without you then it will likely impact the price. Taking steps to remove yourself from key operations and building a strong team with good processes will take time but pay off in the end.

You might be thinking, ok I get it I need to plan. But surely, it’s not that big a deal if I have a good business someone will buy it. Fair enough, but don’t forget that selling a business is like any other market – it is very competitive. Think about selling your business with the following in mind:

  • Data from The Australian Small Business and Family Enterprise Ombudsman tells us that 2.1 million or 97% of all businesses are ‘Small Businesses’ with fewer than 20 staff.
  • The Global Financial Crisis [2008] decimated the retirement plans for many baby boomers and many held onto their businesses while the market recovered.
  • This delay in sales has caused a significant backlog and in the next decade there will tens of thousands of business owners needing to exit.
  • There are more sellers than buyers in the market.

As you can see it’s fair to say that the business sale market is crowded and likely to stay that way. Properly preparing your business for sale is one way to ensure that you stand out from the crowd and give yourself the best chance of success.

Having established that being ‘sale ready’ is an important way to protect business value it’s time to have a look at the actual process of selling your business, starting with making the decision to sell.

Deciding to sell and avoiding the abyss.

Assuming you aren’t being forced to sell [if you are read here] there is no exact way to know when it’s time. You may be planning to retire, you may have just had enough, your industry is changing or other circumstances are making you consider alternatives.

Having been through this a few times myself I can honestly say only you will really know when it’s time. The important thing is to make a considered decision and here are a few things to reflect on:

  • Can you afford to sell?
    Your stage in life is the key consideration here. You may be used to a certain income level that needs to be replaced – work out how before you sell.
  • What will you do next?
    This can be tough if you have been running your business for a long time. Are you retiring, do you want to buy another business, do you have a past career to reignite or some other passion to follow? I’ll explore this issue further below.
  • The grass isn’t always greener.
    Thinking you will simply buy another business and life will be good is easier said than done. You may end up jumping from the pot into the fire. If your current business has a few issues it might be better to spend some time and money sorting those out and sticking with something you know inside out rather than taking the risk on a new venture.
  • Consider taking a sabbatical.
    If your business allows for it consider putting a manager on and take an extended break, this time away might be just what you need to clarify your thinking. Yes, it will cost some money, but it might be the cheapest money you ever spend.
  • Consider your team.
    You may have had some key people with you for many years and telling them you are selling can be very hard. You can’t keep the business because of them but give some consideration as to how and when you will break the news. No matter how secretive you are about the sale, the news will get out. It can be tough but your team must hear this news from you.

Take time making this decision. Think carefully about what’s next, particularly if it’s not retirement.  When you first get out it’s great, you celebrate, clean up your affairs and generally have a well-earned break. Then reality can set in. Life and all its expenses continue even though your income has stopped, and you can find yourself staring into the abyss saying, “what do I do now?”. What was once a horizon full of opportunity becomes a darkening tunnel as the pressure mounts to begin something new. I tell you this from experience.

A few years ago I made a solid exit from a business, it was well planned, we hit our target price and the transaction went about as well as you could ask for. What I didn’t consider properly was the ‘what’s next’ question. I had a few ideas in mind but when they didn’t work out, things went a little sideways for a while and it took me some time to find my purpose. In the end, it all worked out well, I made a total career shift and am now doing something I love within a fantastic business. Unfortunately, I also know other people where it hasn’t worked out and they have never really been able to settle into anything after they sold – this has impacted them personally and financially.

In my view, this critical part of preparing for sale is generally overlooked. Many business brokers won’t care, they want your listing, so take the time to get your head right first. If you can’t find anyone else objective to talk to then give me a call. Please don’t mistake this as an effort to discourage selling, it is not. One of the main aims of business must be to build the value and then cash in some time down the track – just make it a considered decision.

Get all your ducks in a row before selling your business ebook