10 Questions To Ask Yourself Before Selling Your Business
Whether you’re part of a 4th generation family business or have successfully spent the last few years/decades tirelessly building your business from scratch, you probably have thought about selling your business multiple times.
It’s probably had its ups and downs, you’ve used it as a nest egg to pay for the cost of life and now you’re a combination of tired, in need of a new challenge or are simply looking for a liquidation event to realise your net wealth.
You probably have expectations about its value, you’ve heard of comparable transactions or you simply just have a number in your head. But like all difficult decisions, you probably don’t know where to start or simply are procrastinating around change.
With a myriad of questions at your fingertips, it can be quite easy to be overwhelmed and delay starting the process of preparing yourself.
Typically the best time to prepare for a sale is up to 2 years in advance, the next best time is today.
When working with owners of businesses, we normally break down the work ahead into 4 key phases 1) Preparation, 2) Enacting Change, 3) Exploration and 4) Delivering a Sale.
But before we’ve even engaged with a client, we normally ask these 10 questions that help frame how ready a business owner is to sell;
Why do you want to sell?
Understanding the real “why” is the most important part of the equation as not only does it affect both your timing and exit strategy but it shows whether it is one drawn from emotion or reason. Whether you simply want to realise your net wealth or you don’t have a family succession plan and just want to retire, it’s important to be clear about it and communicate it with your trusted circle.
When do you want to sell by?
More often than not owners are terrible at timing the sale of their business. Why?
Because, the best time to sell is when your business is performing well with plenty of upside ahead. Sadly, most SME owners finally sell when they’ve had enough, grown tired or business has stalled for a number of years.
That’s why timing your sale up to 2 years in advance is critical. It gives you exit goals to reach for and ensures the process is as unemotional and rational as possible.
Do you have an idea of what you want to sell it for?
Almost all SME buyers have an idea of what they’d want to sell their business for. They either 1) are acutely aware of the lifestyle their business has provided and the time put in or 2) have heard of comparable transactions or know the valuation benchmarks within their space.
Whatever you do, making sure your expectations are lined up with the reality of your business’ financial performance are crucial to ensure time and energy isn’t wasted on a process.
What are your expectations of a sale process? Do you think you can just walk away with a cheque?
The majority of SME owners have never bought and sold businesses so when it’s finally time to sell it’s critical that you understand that a sale process will be both challenging and time-consuming. Each step requires careful planning, execution and follows a methodical process.
Unlike most assets, it’s unlikely that you’ll walk away with a cheque for 100% of your business on day 1 unless you’ve prepared your business to perform without you and have left a solid management team in place.
Selling your business is an emotional rollercoaster, so regardless of whether you choose to hire an external advisor or use internal resources, having a team in place that understands both the process and emotions involved is critical. It is crucial to understand why you need a transition plan.
What will you do when you sell your business?
Think about how you will adjust to the change and involve family members in the planning process (not the sale process).
You may want to retire, start angel-investing, spend more time with family or travel more. Whatever you choose to do, plan ahead and set realistic goals based on 1) Finances, 2) Family and 3) Time.
Do you have your financial reporting and management accounts in place?
The majority of small business owners do not have CFO’s, instead most hire an FD and intimately manage the finances themselves.
Not only does sorting out your financial reporting prepare you for any due diligence that may come up in a sales process but it serves as a useful exercise for you to get both you and your business aligned for a sales process. Use this opportunity to really understand the financial health of your business and create a true Adjusted EBITDA.
Do you have a transition plan and a senior management team or executives who can/are leading the business without you?
Buyers look for capable leadership teams and continuity without the owner’s involvement. That’s why we’ve found;
“Owner-led businesses are worth less than a comparative business with a pre-existing management team”.
In order to avoid earn-outs or be tied into vendor loan notes it’s important to have a transition plan that both engages and incentives management team members 1-2 years in advance of a sale.
Do you have the resources internally to engage in a process?
A sales process creates a second job for many of your employees. Ask them whether they have the time available and ask yourself who really has M&A experience or has led a sales process before.
Do you think you can do it by yourself?
Many small business owners have built their business up from nothing so the idea of asking for help or knowing who to trust is foreign to them.
Don’t hire someone who promises to get you the best price, hire someone who will take you through a process and will be able to provide you with the expertise and a calm head for the rollercoaster to come.
Do you know where to start and what’s the next step?
Like all things, change is difficult and the hardest point is starting.
Whether or not you decide to sell your business, getting an understanding of your true financial health and the valuation benchmarks in your space is the first step on a long road to preparing your business for a life without you.
Feel free to answer the questions above and send your responses to adam@richardsoncapitaladvisory.com. I would be more than happy to help you discover the reality of selling your business.
