As Frank Law + Advisory builds our Corporate Advisory practice helping SME owners realise value, I continue to be amazed at how little SME owners think about exiting or divesting part or all of their business until they have one foot out the door.
What commonly happens is that there is an event. This may be a health scare, a grandchild is born, a great holiday or simply a mindset shift. The event often happens around Christmas or the new year where time moves slower and people have time to reflect.
This event motivates the owner to action. This usually involves talking to their accountant or doing some research. What usually follows is that the owner engages a broker, puts the business on the market as is and hopes that a sale will come through. It is like going fishing with a blindfold on. You don’t know if you are fishing in the local swimming pool or the pacific ocean.
This is not ideal and often means that businesses do not sell or they sell for well below what the founder could realise if they had taken an alternate route.
At Frank Law + Advisory we stand by the principle that if you want to sell well, you should have started planning 2 years ago. We believe that many SME owners should focus on an exit at all times. Fundamentally if the business is operating with a sale mindset, it will operate at the best possible profit margins and the lowest risk whilst marching forward towards its strategic objective.
So if you are sitting in front of the cricket on boxing day or driving the ski boat or sitting around the bbq at the holiday house and the idea pops into your head that you want to sell, you need to ask yourself one simple question: “Do I want to sell well or just sell?”. Either way we can help but here are my four thoughts as to why you should choose to sell well.
You have worked very hard to grow this business. It is not simply an economic unit but rather a legacy full of relationships, memories and effort. Your efforts and the business deserve to be sold well.
Taking the time to sell well means that you respect the legacy that you have created and facilitate the next owner or partner to build on that legacy. It is not lost but rather provides the shoulders on which the next owner can stand.
It brings me great joy to see the businesses I have sold over the years continue to do well under new ownership.
The business likely has much more value than you think. With the right team and strategic plan you can increase value significantly. The best plans are ones that are laid out ahead of time and executed well. By taking a slightly longer approach you can implement changes and strategies to create real value.
These may include employing new people, developing new products or offerings or even acquiring a complementary business.
Value creation often happens just prior to value relaisation. Given the right time and strategy you can often double or triple the outcome.
Drive or be Driven?
Selling well often is a two-step process. Firstly it might involve bringing in the right capital to de-risk yourself and provide growth. Secondly it might be to sell out when the plan is executed.
Many owners are tired and do not want to execute the growth plan. This is where we like to suggest that owners need to move from the driver’s seat to the driven seat. Owners should consider attracting a partial sale to a new party where that new party can drive the car and the owner can be a passenger. The new driver’s aim is to grow and accelerate the business towards a second value realisation event. This second event may be substantially larger due to the increase in size under the partnership.
Sometimes the best outcomes are those which happen in two stages. The first stage is to de-risk and take some money off the table. The second stage is to completely realise your stake when the growth partner realises theirs.
Shifting your focus from the driver’s to the passenger’s seat can open up significant opportunities which may not have otherwise been explored.
Why sell at all?
By taking steps to set up the company to achieve maximum value realisation, many owners place themselves in the governance seat rather than the CEO seat. Suddenly they have a great business running at low risk with high returns which takes very little time.
If done properly, they can completely derisk themselves to ensure that no personal guarantees exist and appropriate delegated authorities are in place.
Running a business under management can be extremely attractive especially if you have a team which can be incentivised to grow appropriately.
The compounding effect of a well run business should not be dismissed.
Choosing to sell well rather than just sell can have significant impacts for the benefit of the founder and their family group. Whilst the grass may look greener it often is not. If you are going to sell, we suggest that your family, your legacy, your business and your employees all deserve that the process is methodical, well thought out and works towards achieving the best possible value even if it does take a little longer.
If you want to have a chat about your business and implementing an ExitReady plan, please let me know. We love working with founders on developing the best strategy for value realisation.
Source link: https://www.franklaw.com.au/blog/thursday-thoughts-for-smes-want-to-sell-well-you-should-have-started-2-years-ago by email@example.com (James Frank) at www.franklaw.com.au