There comes a time in (most) founders’ lives when their thoughts turn to selling their business. For some, it has always been the objective, and for some a gradual realisation that this is the endgame. Regardless of how this objective has been arrived at, the key to a successful exit is preparation, preparation, preparation. A useful structure for this preparation, particularly for a first-time seller, is to approach using these three pillars.
1.The practical or “Is your business ready for sale”
The readiness of your financial books and records, corporate compliance and governance, and your general record keeping will make a huge difference in maintaining the credibility of your business as you enter into the due diligence phase of the sale process.
“Simple” things like
- Will the high-level figures you talk to in initial meetings be borne out in the detailed financials of the business?
- Compliant board minutes and regulatory filings sound obvious but how well organised and accessible is this information for presentation to a third party? The same goes for your customer and supplier contracts.
- Are your financial policies and processes best practice and defensible?
- Even if your size doesn’t yet require a statutory audit, are your financials recorded in line with key accounting standards? You may want to consider an audit before it is formally required to give an acquirer confidence in the robustness of your numbers.
These health and hygiene factors are absolutely key in maintaining the confidence of potential acquirers.
The sale process will also monopolise a significant amount of founder time, more on that later, so can your operations run successfully and smoothly without your full attention? If the decision-making within the business has been fluid up to this point it’s essential that key management and the broader business have a clear decision-making framework so the business doesn’t stall or spin its wheels just when you need it to be hitting all its targets. If it doesn’t yet exist, create it.
This first pillar can take a significant amount of time, particularly if the business wasn’t started with this outcome in mind, so start early.
2.The commercial or “How do you best maximise value on sale”
Sure, your financials are important for maximising value on exit but there’s so much more to it.
Are you really clear on where the value lies in your business and are you realistic about what that valuation is? Similar to when you are selling a house, it’s tempting to believe the real estate agent who gives you the highest valuation but it might not give you the most realistic outlook.
At Lantern Partners we’ve worked with some great advisers who work closely with founders, and us, to tease out the key value proposition, and the financials that support that, to really maximise the value of the company.
And demonstrating how the business can continue to run successfully without you, fully, at the helm through the sale process will go a long way to demonstrating the robustness of the business model you’re presenting. Smart Company reported that “almost one-third of a business valuation is lost during a sale due to poorly structured succession plans”
Talking of advisers, getting the right combination of transactional, legal and tax support is critical. Both from the perspective of experience within your sector and for your size but also a commercial team with the sellers’ interests truly at the heart of how they operate. A deal team who leave their egos at the door are worth their absolute weight in gold.
3.The mental or “Are you ready for the sale process”
Know why you are selling and keep that in the forefront of your mind throughout the process.
Prepare yourself for an emotional roller coaster. Have a great support network (professional and personal) in place because there are always bumps in the road, even for the smoothest of transactions, so being able to hold your nerve and keep perspective is essential. Business isn’t personal but it absolutely will feel like it at points.
Preventing deal fatigue, or at least its unintended outcomes is important.
Some processes are quick, particularly at the moment, but most processes feel long, particularly for a founder who is used to rattling through decision making. Having a team you can rely on to push through the mundane elements and ensure you are properly engaged when it counts is critical.
So with all this in mind, how do your pillars look today?