Ology July 08: Selling A Business
Unfortunately, too frequently, and unfortunately too many find that their pension isn’t worth what they believe it to be.
Let me explain. Many small businesses are built around the business owner. In fact, one of my favourite definitions of a business is “if you were taken out of your business, would it continue to function at the same level. If the answer is ‘YES’, you have a successful business. If it is ‘NO’ you have a job”.
Recently one of my clients had an opportunity to take over a competitor’s business as the owner was retiring. He had valued the business at £500k (a multiplier of about 7 times profits). With my help, my client analysed the business and came to the conclusion the business was worth £500k with the owner in place, but as he was also the only salesman, and had all the relationships with contacts, it was probably worth less than £200k without him in the business. Needless to say, the deal did not proceed and 12 months later the owner is still working!
So what can you do to realise the full value of your business? Well, apart from appoint an Ology business coach to advise you, there are several things you need to consider.
Firstly, you need to plan your Exit Strategy as far in advance as you can – ideally some 5 years before the date. The strategy should include
- Reduce your drawings – your accountant may advise you to take profits out as dividends as it is tax efficient, but consider the value of the business as a multiple of profits. The higher the profits, the greater the effect of the multiplier.
- Make sure you have done your succession planning. You cannot afford to be the kingpin of the organisation, and if as in the above example, you do all the selling, marketing or design work, look to employ people to take over those roles or find alternative ways (e.g. outsourcing, appointing resellers, implementing e-commerce etc) of getting around the reliance on your expertise.
- Make sure your books are in order. A potential investor in your business will want to undertake a “Due Diligence” process. This is where the accounts, processes, orders, work in progress, salaries, HR processes etc for a number of financial years are inspected in great detail to ensure the business is being truly represented.
- Ensure your website is up-to-date, well designed and accurate. There is nothing worse on a website than a proud announcement of a new product which will be launched in 2007! For many potential investors this is their first view of your organisation.
- Ideally, make sure your product or service has a good future and is in a growing not declining market. Ensure you can adequately expound your Unique Selling Points (USPs)
- Ensure the company procedures are well documented.
- Plan your exit strategy - take advice in good time from your Lawyer, Accountant and Bank Manager – and your business coach if you have one - it may save a lot of pain later!
- Ensure you know all the relevant figures – if like myself you are an avid fan of Dragons Den, you may have cringed at some “entrepreneurs” knowledge of their business plan!
- Consider how you are going to sell the company. Management Buy Outs (MBOs) where you sell to the employees and Management Buy Ins (MBIs) can be funded by Business Angels, Venture Capitalists and Venture Capital Trusts (VCTs) and possibly by banks, although in the current market these may not be so readily available. The Small Firms Loan Guarantee Scheme (SFLGS) is another potential route for funding should the buyer have no capital or collateral to back a loan. There are many Business Brokers willing to help you to sell your business (for a fee).
With careful planning, realistic expectations and a following wind, you should have a long and happy retirement on the proceeds of a lifetime’s devotion to your business.
By Hugh Fenton - Ology Coach, Crowborough
About Ology Business Coaching
OLOGY BUSINESS COACHING FRANCHISE - PROVIDING BUSINESS COACHING AND PRACTICAL ADVICE TO DYNAMIC COMPANIES An Ology Business Coaching advisory Franchise enables you to benefit directly from your hard work, control your working hours and make plans for your future. You know that you want to change your working life for the better - to have the opportunity and influence to help those around you.
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