As a business owner, selling your business ‘baby’ may be far from your mind, and wrapped up in the challenges that being a modern-day entrepreneur involves.
Most founders and owners want the chance to realise the value of their hard work. Providing security for yourself and your family becomes increasingly attractive.
So, when is the best time to sell your business and what are the key signs to look for?
1. Know your number
Do you know your number - the amount of money you need to ensure that you can live a life you enjoy, doing the things you want to? One which allows you to spend time with the people you want to, for the rest of your life, all without the fear of ever running out of money?
You will have complete control over the most precious commodity of all – your time. Working becomes optional; it's a choice not a chore.
A Chartered Financial Planner can help you crunch the numbers to calculate your own personal number. Knowing that you can sell your business and achieve financial independence is the starting point.
If your business isn't worth this number to provide you with financial freedom, knowing what it is will give you a sense of purpose to reach it.
The risk of not knowing your number is real, and this can consist of holding out for a larger sum that you don't need, or selling for a sum that isn't enough but looks good on paper. Only you care enough about the right number.
2. Growing revenue and profits
Looking at the last few years of your P&L account, are the numbers moving in the right direction? A solid track record of improving finances is attractive to buyers.
If you run a trading company, your revenue and profits are a matter of public record and your data is available for those who want it.
With increased profits your firm will be on the radar of potential acquirers. Their advisers will begin to show interest and create some competitive tension, driving the valuation in the right direction.
The risk of not planning ahead is real. Your balance sheet needs grooming. Cut costs, increase margins, and look lean and slick. A lame, fat and lazy company won't make the cut.
3. A well-oiled machine
Does your business have documented processes for what it does, and how it delivers its services to customers? Can the business deliver on its promises through a systemised, repeatable, scalable model? One that doesn't require you to be there every day?
This concept is the basis of Michael Gerber’s classic business book The E Myth. Done well, the value of your business will increase.
Without a ‘How To’ manual that a buyer can easily take over and continue to run your business, the potential sale value of your company isn't maximised. So, read The E Myth and get to work on making yourself redundant.
The risk of not having a process is real. Who wants to buy a tangled knot? Time is money, and buyers will find a better alternative.
4. Assemble your sale team
You haven’t built your business alone. You have taken advice from accountants, lawyers and other specialists over the years. When planning the sale of your company, surround yourself with a top-notch team who can guide you through the minefield.
You sell your business once and want to avoid errors that could cost you financially and emotionally. The advisers who have helped you so far may not be ideal to take you through the next chapter of your business evolution and the sale process.
Even if you’re five years away from selling, it’s important to identity the most suitable corporate finance adviser, as well as a legal team, tax specialist and personal financial planner. This team should work together to achieve the best outcome for you and your family.
The risks of not having a good sale team are real. Do they care? Are they committed? Will they get the best terms for you, or advise you to walk away? Always know their motive.
5. Ready for the next chapter
There comes a time when intuitively you know you are ready to hand over the reins to a new owner. For you it may be that you are ready to slow down. For most entrepreneurs, retirement is a dirty word.
You may feel that you have taken the business as far as you can. Risks are increasing, competition is becoming intense and profits are squeezed.
Maybe you have a new and exciting idea that you want to develop. Perhaps you want to spend more time with your family, travelling, or learning new skills and hobbies. Or maybe you’re considering a ‘portfolio career’ advising and consulting younger business people that would benefit from your experience.
When feelings creep into your thoughts, it’s the time to explore your options. Consider how to design the next chapter of your life with clarity and purpose.
Business owners are rarely serial entrepreneurs building multiple businesses. They have turned a passion and their hard work into a successful venture. The chance to convert that spirit into personal and family security is the payback for all the risks. Planning your future is vital, and you need to avoid the void. Life after the sale can be empty of purpose.
If you are getting closer to that time, or want help in working out the process and building your personal financial blueprint, get in touch with us.
At Capital, we believe in the entrepreneurial spirit.