This article covers the key issues facing business owners who are looking to sell their business. It gives advice and guidance from a timing and financial perspective as well as giving some tips on how to prepare a business for sale.

First thing, Preparation is key.

If you’re a business owner, you’ve probably asked yourself the question ‘When should I sell?’  Getting the timing right for the sale of your business isn’t simply about market conditions, it’s about preparation and distinguishing between seller and business readiness.

Too many business owners postpone their decision to sell whilst they wait for that perfect moment. Many see this as when profits are high and markets strong or when there are plenty of buyers looking to acquire businesses. Buy very few owners get this timing right, according to the statistics, 70% of businesses that go to market never get sold. This isn’t because they aren’t attractive to potential buyers, it’s because the owner has procrastinated and started the sale process unprepared.

When the timing is right

The best time to sell is not just when everything appears perfect. It's when the owner is personally and professionally ready, and when the business is ready for new ownership.

So when is this? Simply put its when the owner has set clear personal goals on what they want from the sale, which means they are emotionally ready to sell. And its when the business can demonstrate to potential buyers its ready for sale.  The business needs to demonstrate it has strong systems, very few dependencies and has healthy financial results and returns.

It is only when everything aligns and comes together that it is the right time to sell. This alignment doesn’t happen overnight. When it does, it gives the owner control over when, how and whom they can sell to and how much they can sell for.

Readiness to sell

Before a business is ready to sell it needs to demonstrate it is actually ready for sale and that the owners are ready too. But what does this business and seller readiness look like?

Business readiness is about whether the company is ready for sale. Can it be operated independently of the business owners or must they stay with it? Is it financially healthy or will it need further investment? Would a buyer get long-term value and a return on their investment?

Here are the most important things we have realised that you must have in place to ensure business readiness:

·      Sales continuity – buyers will pay a premium for predictable future turnover. Things like long term contracts and repeat business reduces their risk and adds future business certainty.

·      Having a strong management team- if the business depends heavily on the business owner plus one or two other staff it is less attractive and likely to be worth less. Demonstrating devolved responsibility is a key thing to be able to show long before you consider selling.

·      Good and consistent financial results - reliable revenue and profit growth, plus well-presented current and past accounts build buyer confidence. At Kaizen we can help you with these if they don’t exist.

·      Scalable growth - buyers want to see growth potential. So well managed, in place systems, IT based infrastructure and processes which are all scalable can indicate long-term growth potential exists.

·      Broad portfolio of customers - if 80% of revenue comes from 10% of customers, that’s not necessarily good. A diversified customer base will help protect any buyer’s investment and indicate growth is achievable.

·      Solid market position - what gives the business its market strength and sustainability? Is it intellectual property, reputational/brand strength, licences, or exclusive agreements. Is product/service quality highly regarded? As a seller make sure you know what the strengths and opportunities for the business are and that you communicate them to buyers.

Seller readiness is all about the business owner or owners. It is about knowing why they want to sell, what they want to achieve from the sale and how they are going to prepare for life after they exit the business.

·      Ask yourself why you want to sell? - are you looking for the freedom and financial security a sale can bring. Do you need to get away for health reasons now or in the future? Or do you just want a change in lifestyle? Knowing what motivates your decision to sell helps you make the right choices.

·      What does enough money for you look like? – how much money do you calculate you need from the sale to achieve the post-sale goals you have set yourself?  A detailed financial plan will help you clarify this, for example if you want to retire and spend some of your time living abroad what’s that going to cost?

·      Your willingness to let go - it is common for owners to struggle with letting go of a business, relinquishing control. Especially if your personality is tied to the business. A successful exit might mean that the buyer trusts your team and wants you to leave.

·      Life after the sale - sellers who don’t have a plan for what they are going to do after the sale often struggle. Whether it is starting a new venture, mentoring or simply retiring, your future post the sale needs some planning.

·      Graceful exit is best - the best exits are those that give the seller time to transition out of the business with grace and dignity.

·      Is now the right time for you? -  one of the first things to ask yourself is are you actually ready to sell? If the answer is no, press pause – this isn’t to postpone or avoid the exit, but to delay and prepare for it properly.

We have already said one of the most common reasons for a no sale is that owners take too long to decide to sell, owners delay selling for one or more of the following reasons:

• they’re not emotionally ready to let go.
• they’re waiting for better financial results especially increased profitability.
• they don’t know how to start preparing their business for sale.
• no exit plan exists
• they have never had a formal valuation.

What now?

Whether you are six years away from selling your business or six months from listing it for sale, start to prepare now. Selling too late, or in an unprepared state, can be costly. Illness, burnout, declining performance, market downturns are all things that can happen in the short term and these can all force a rushed sale. This can lead to:

• lower valuations,
• fewer buyers,
• restrictive deal terms,
• post-sale regret.

A well-timed, well-prepared sale provides freedom, peace of mind and the opportunity to exit on your terms.

Summary

The right time to sell is not about waiting for external factors to come into play. It’s about you taking the decision to sell. Being clear on your goals, and your business being built to thrive without you. You only sell your business once, so make it count. Prepare early. Understand your business and build a sale-ready entity that buyers will compete for. At Kaizen we can help you prepare for a business sale. For a free, no commitment consultation call us on 01482 772261 or email us on info@kaizengroup.uk  

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