The ‘Snakes and Ladders’ of Selling Your Business

The process of selling your business is like a game of Snakes & Ladders, which – with some forward planning – we can help you to win…

Selling your business is once a in a lifetime experience for the majority. The culmination of a lifetimes work, the opportunity to access a retirement that is long overdue and the chance to repair that personal balance sheet so damaged by years of investing in your business.

Timing is Critical. Preparedness is Essential.

In short it is an IMPORTANT milestone, seminal in the life of an owner manger and something that should not be addressed lightly. Sadly my experience is that all too often business owners sell when they are not ready to sell. In this regard it is important to distinguish between the business not being ready for sale and the businessowner being ready to sell.

I have often found it interesting that owner managers steeped in focus on their business do not pay anything like the same attention to detail when selling their business. I have also found it interesting that owner managers and the professional services market fail time and again to join forces to provide a more formidable team in the game of Snakes and Ladders. 

The most successful exits from a business have come about as a result of planning and execution with a good understanding of the “game”. Professionals understand how this works but all too often provide disparate advice which is uncoordinated and more often that not comes way too late for their advice to support a greater valuation of the business.

Owner Managers are equally culpable of continuing to work in their businesses devoid of the understanding of the “Game” and as such failing to influence key elements of the value assessment. Arriving at the door of professionals too late to benefit from their expertise and experience.

When does the Game start?

In most cases (during my time as a Corporate Lawyer) my initial contact with clients was after an agreement for sale had been reached.  This is too late. Lawyers have a lot of value to add to the process of selling a business if they are allowed to provide that advice and support well enough in advance. 

One of the initial request for information about a target business will almost always include the last 3 years accounts. It follows that this process starts at least 3 years out from a projected sale date.

The benefits of focusing on a sale well in advance of the sale are numerous and they give rise to why I refer to the whole exercise as a game of Snakes & Ladders.

The Valuation Mechanism

Valuation of a business is an art. Invariably based upon prior designated, industry accepted formulas. Understanding these formulas at the outset is critical. Used properly they should not only help to provide a real time value if the business were to be placed on the market but they should also provide rules and guidance on how to impact the value mechanism.

It should be easy to determine from the formula what can be done to influence the value. Increase sales, increase profit, reduce working capital requirements and reduce debt are all obvious fiscal indicators that will undoubtedly influence a valuation.

Less obvious but nonetheless important will be opportunities to present a capable management team, a business that is well organised, employees that fully engaged and systemic innovation help to evidence the quality of the business and point toward an acquisition that is reduced in risk.

Working on these issues through a lead in time towards exit are the opportunities to climb the LADDERS and improve the value of the business.

Due Diligence

What does this mean? It could be defined as “the detailed examination of a company before becoming involved in a business arrangement with it”. Sounds quite benign. Until you realise that this is the tool that most acquirers will use to find “issues” in the target business with a view to reducing any agreed purchase price. For “issues” read SNAKES. The good news is that preparation and your own diligence can avoid any issues arising and help to avoid the snakes that will reduce a businesses value.

Timing

Winning the game of SNAKES and LADDERS is as important as the lifetimes work of any owner managers. Carelessly moving toward exit without preparing for it is unacceptable. It should start a minimum of three years out and, it should start with planning. A plan to win the game of Snakes and Ladders, a plan to elevate the value of your business upon exit, a plan to make sure you underline your lifetimes work having executed your exit plan well.

The Uncommon Practice plays the game of Snakes and Ladders regularly. We are experts, we see what you cannot. We will protect and enhance your value…more importantly we will realise that capital event that will provide for a long healthy and enjoyable retirement. 

Now that you’ve seen that selling a business is not as simple as first thought, let us know if we can be of assistance – check out our End Game service orget in touch with us today.

Most business owners don’t factor in time to plan their exit. Preparing for exit gives you a higher chance of succeeding when you do decide to bite the bullet. Sometimes you just need a trusted advisor to guide you through the process…

Get in touch today to find out how we can help.