Every founder has a degree of emotional attachment to their company, but sometimes it’s necessary to let go. If you’re leaving the country, if you’re moving on to your next venture, if you’ve made a success of your organisation and want to reap the rewards of offloading it, selling up is a natural step.
That said, it isn’t always easy. Make the wrong move or give the wrong impression when selling your business and you could put off prospective buyers and complicate the process.
So how can you guarantee a smooth sale and transition? Here’s what you need to know, and what you need to do.
Have the right answers
Prospective buyers always have a number of questions, but “Why?” is always their first. They don’t want to be sold a non-performer, and they need certain assurances that they’re buying a viable business. That means you need to explain and articulate your motivations in a way that makes sense to them.
If you’re retiring or leaving to devote more time to your children, this should be a fairly simple process. If you’re leaving because you feel like you’ve gone as far as you can with this company, that might be a trickier sell – it’s very easy to phrase that motivation in a way that indicates that the organisation has limited potential for growth.
Be honest about your motivations, but delicate in how you express them: if you’re selling up because you feel like you’ve nothing else to do, tell your would-be buyer that a dose of fresh blood is exactly what the company needs to flourish. If you’re selling up because you’re starting a new venture, emphasise your reluctance to abandon something successful and your excitement at seeing where they take it next.
How to sell it
When you’ve developed a reassuring answer to the question of “Why?”, you can move on to thinking about how to go about selling up. Though most organisations are sold as trade sales to other businesses, there is more than one way to offload a company, and the ‘correct’ way will depend largely on your personal priorities.
The first thing to do is decide how much of your business you want to sell. Whether it’s due to emotional investment or an anticipation that the company may, at some point, be worth more, it’s common for entrepreneurs to retain some stake in the company they built after they’ve sold the controlling share. So decide whether you want a full or partial sale; either option is legitimate. The appeal of the former lies chiefly in the way that it represents a clean break: removing yourself from the equation can be a great way to kickstart your retirement or clear your slate for your new venture. The appeal of a partial sale is twofold: it offers the prospect of future profits, and it gives your buyers confidence that you’re not simply trying to rid yourself of a burdensome business. If you agree to an ‘earn out’ model, you may even be able to stay on while the purchase price is paid in a series of profit-based instalments.
There are also ways to sell your company without actually selling your company. A sale of assets, for example, can be appealing to buyers who don’t want the hassle of buying an entire company, but do want your customer lists, intellectual property, or equipment.
Timing is everything
Determining the nature and method of your sale is only part of the process: the execution is essential to ensuring everything goes smoothly. Don’t immediately announce your intentions: if word spreads quickly enough, employees may worry about their positions, and customers and suppliers may worry about the agreements they have with your business. When it comes to selling your business, caution usually wins the day.
This principle extends to the timing of your sale. Selling your business immediately after you’ve made a series of long-term investments isn’t the best move: it’ll damage your short-term profits – thereby making you less appealing to potential buyers – and if you intend to pursue a full sale, you won’t be around to see the benefits. Cutting back on long-term investments makes your balance sheet more appealing to potential buyers.
When you’ve done that, you still need to consider timing. For a cyclical business, current profits are only one indicator of potential success, so it’s vital that you’re able to demonstrate potential for medium-long term growth.
Hand it over, hand it over…
When you finally do leave your company, leave it properly. Whatever your legacy ends up being, it can only be improved if you make a conscientious effort to help with the handover and part on the best possible terms. Selling can be a painless or painful experience – the nature and level of your involvement will determine which it is.
By Scott Brown, MD Sable Accounting