If so, here’s some good and bad news.
First, the bad news. If you’re looking to sell right away, you probably won’t get full value, as it takes a good year of preparation to sell before you actually put your company on the market.
The good news? A lot of businesses have changed hands in the past several years, and there’s a fair amount of money sitting on the sidelines looking for good deals.
Plus, if you actually take the time to prepare your company for a sale, you’ll more than likely jump to the top of a buyers’ short list, simply because most sellers don’t do the proper “prep work” to make the sales process easy and transparent.
So how can you best set yourself up to win when you sell your company? Here are some tips to get you headed in the right direction to receive the best value for your company by the end of the year.
1. Sell your business the way you’d sell a house. Selling a business and selling a house are similar in a lot of ways – and most people wouldn’t ever let people tour their home without making some cosmetic changes and cleaning up before offering it for sale.
The same is true for your business.
You’ll want to run for the next year with good financials, so keep your paperwork up-to-date and document everything. Outline each and every responsibility of each job and include key performance indicators that clearly establish what is expected of each player and group.
Now’s the time to get your “house” in order. Over the next 12 months, give your business a fresh coat of paint and get it tidy.
2. Start your game plan. Seek out and meet two or three business brokers in your area, as the majority of deals come through brokers.
A good business broker is invaluable, and I typically coach companies to go the broker route, as the best brokers do more than justify their fees and can both guide and counsel you through the marketing-and-sales process.
In your initial discussion, you’ll get a better idea of who your potential buyer could be, and how to best position your company to get the most value in the marketplace.
You’ll soon discover there are basically two types of buyers: Those who are looking to buy a fixer-upper and those looking to buy themselves a job.
Ideally, you’ll be looking for an investor who is looking for a business to take to the next level, and who can work with your current team and systems – as those buyers are often willing to pay more for a business that already have effective systems in place.
3. Learn valuations for your industry or category. Another advantage of using a broker is getting solid information about the valuation models buyers will use for your company in your particular industry or category.
Different industries use different multiples. Some use multiples of profit, some revenues, and others cash flow. You can get a good handle on what the numbers for own your business simply by talking to a number of brokers and getting some benchmark metrics.
You’ll also learn where the goodwill in your business is going to come from.
Generally, your database is the biggest asset you have, although you may be in a business where stock and inventory levels will figure into the equation as well. Knowing what you have to work with, or need to focus on, will give you confidence in putting together a solid informational and sales package for prospective buyers.
4. Plan your information and sales kits. Your broker will also guide you on putting together all of your materials in an overall information and sales package, one that includes samples of all of your marketing materials, in addition to an overview of your financials, positional contracts for your team, and any of your management.
Also included in this will be an overview and inventory of your assets, equipment and any physical components of your operations. Buyers will want and need access to this information as part of their own due diligence, and the more information you can provide, the better and easier the sales process will be.
At this point, don’t be overly concerned with disclosing proprietary information that would need to be covered by non-disclosure agreements or non-competes. The objective of what is essentially a sales package is to position and present the company in the best possible light to attract the right kind of buyer for your situation.
5. Prep your team. Finally, strategise, create and then implement a good communications plan with your team and management about your goals and objectives, your desired outcome and your “reasons why” for the sale.
You may also want to seek outside guidance on this process as well, as communicating a sale can be a tricky balance. Under-communicate and you could create a sense of panic in the organisation; Over-communicate and you could do the same.
Your plan should not include only an overall theme or strategy, but also technical details on how passwords and transfers of phone numbers will take place. While these may seem minor, they are the types of items that can cause undue stress or worry as the process of transition winds to a close.
Finally, just be sure you also meet with your accountant or lawyer to make sure what kind of sale is right for you so you don’t pay more taxes than you need to as a result of the sale.
Also, be patient, and realize not every sales process is flawless. On average, one of three deals falls through in the due-diligence portion of the process.
While all of the prep work can seem daunting and maybe even exhausting, the more work you can put upfront into proper positioning and “packaging,” the quicker and easier the sales process will be, and the more value you’ll get in return. Ultimately, that will pay off in creating a true multi-win scenario for you, your buyer, your customers and your team.
You Are Your Own Client
Before you can build a start-up that takes over your industry, you need to treat yourself as your own best client.
In business, when you have a client, the relationship is formalised into a structured one where there are defined expectations and regular meetings. For example, if you are a consultancy and have a one-year contract to deliver services to a client, the relationship will be formalised, structured and possibly include monthly status meetings. Some may be report-back meetings while others may be briefing meetings.
Your client will receive a monthly invoice and there may be quarterly reviews of the work you have done. Your general mindset is one of service to the client because they are important and worthy of the effort. Crudely speaking, most service-provider arrangements work in a similar way because the structured model works.
In contrast, as entrepreneurs, our relationship with our own business is often far more chaotic or ‘organic’ than formal. My contention is that it is also much less effective. When I work with SMEs, one of the first things I do is encourage the entrepreneur to treat his or her own business as a client by formalising meetings, ensuring that there is a feedback loop and having a service-provider mindset. By making these philosophical and structural changes, you will create a far more efficient and well-run business.
There are four aspects to any business which, in my view, should be formalised.
It still astounds me how informal the meetings are between partners in SMEs, especially when they operate from the same office. There are no set times, no agendas and no outputs required. The fact that you might sit in the same office or chat regularly is the problem because it’s interpreted as proper communication while it’s actually a very undisciplined and unstructured process. Casual chats do not ensure that all the requisite items or issues are being properly discussed and dealt with.
The often-given excuse for not holding weekly, biweekly or monthly meetings with team members at the same date and time is that the business is fluid and the entrepreneur needs to be responsive to their clients’ urgent needs whenever these might occur. And so non-rhythmic meetings are occasionally inserted into the gaps in between the chaos.
The discipline that I try to imbed in the SMEs I work with is to hold rhythmic meetings at a certain time and day every week, month or quarter. Should there be a need to cancel this meeting for whatever reason, it should be rescheduled. The simple discipline of rescheduling and not cancelling allows for a compromise between the practical reality of an entrepreneur’s life and the discipline required to build a sustainable business.
Agendas are often seen by entrepreneurs as an icon of the structure of the corporate world. They smack of rigidity, stuffiness and boredom so they are often discarded and replaced with warm and fuzzy chats. In reality, in order for it to be an effective use of time, every meeting requires a structure, outline or agenda.
This can be a comprehensive agenda similar to that used by corporates or as simple as each person in the meeting talking about their three top-of-mind issues. What is important is that there is structure and outputs, otherwise the meeting’s output is merely that it’s nice to know. The output from a meeting with a formalised agenda is that it’s nice to do.
4. Product review
When last did you, as an entrepreneur, formally ask yourself if your products are still relevant and effective in the market? One of the greatest oversights made by SMEs is not regularly reviewing the appropriateness of their existing products or services. In a high-growth, chaotic environment that is attuned to constantly producing new products, existing products soon become the ugly stepchild, only getting attention when the client cancels the contract because your competitor has a faster, shinier and cheaper iteration of your product. An incredibly important discipline in any business is the regular and formalised review of products and services.
We resist structure as entrepreneurs and the price of that resistance is ineffective and inefficient businesses. By simply treating ourselves as we would our clients, we are able to imbed a level of structure to our businesses that will create a far more effective and enduring business.
What’s The Worst That Can Happen With A Disgruntled Silent Shareholder?
Whether a shareholder brings capital to the business, experience or connections, you need to ensure everyone has the same vision and values.
While we often hear that it can be bad to have a silent shareholder that does not want to play ball, it is not often that we make enquiries about how the governance of a company can be hindered by a disgruntled shareholder.
Most of us assume that as long as they own more than 50% of their own company, they are entirely in control of all aspects of the company and how it is governed. This is not true: Even if you are a majority shareholder, holding less than 75% of all the shares in your company can still result in headaches if a minority shareholder, holding at least 25% of the company, becomes disgruntled and neither participates in the decisions of the company, nor consents to the decisions being made.
What is set out below highlights, among others, why it is so important to give shares in a company to prospective shareholders over a period of time, rather than from the outset. This allows for shareholders to prove their worth without you potentially placing your company in a position where it could be held at ransom for many years.
The illusion of holding more than 50% of the shareholding in a company
- Many people assume that by holding more than 50% of the shares in a company they are free to do with the business as they please. This generally only holds true for basic decisions of the shareholders, such as the removal and appointment of directors. The most important decisions of a company are based on special resolutions. A special resolution requires that shareholders, either individually or collectively, holding at least 75% of all the shares in a company, vote in favour of a specific decision.
- Examples of decisions that require a special resolution include:
- Amending a company’s Memorandum of Incorporation
- Approving the issuing of shares or granting of other similar rights
- Authorising the basis for determining directors’ salaries
- Disposing of company assets
- Mergers and acquisitions.
So, what does this mean for you and your company?
- If you are a start-up looking to raise funds, apart from some exceptions, you will not be able to issue further shares to new shareholders or anyone other than existing shareholders if there is a shareholder that is effectively dead weight.
- Should you manage to vote a new director to the board, you will not be able to determine the basis on which they are compensated (their salary) without a special resolution.
- If you intend to merge with another company, you will not be able to pursue this without a special resolution.
- If you plan to raise money by disposing of or selling most of the assets of your company you will, once again, be prevented from doing so.
Accordingly, it is always best when starting a venture to vest your shares over a period of time. This means that, for example, shareholders are only entitled to have their shares allocated to them after a certain period of time to avoid a situation where you have a dead-weight equity shareholder hindering the governing of your company, and requiring possible litigation to remove them.
There’s More To Team Management Than Leadership
When you’re running a business you need to ensure that your employees are on your side, helping you to make profits. Giving them job security, taking them seriously and treating them with respect, will go a long way in enhancing loyalty and productivity.
The staff that work for you determine:
- How happy your customers are with your business
- The quality of the things that you sell
- The costs that you incur to sell your products and services
- Your risks – the things that can go wrong and how much it costs you
All of these things determine your profitability and how competitive your business becomes. How do you ensure that everyone is on the same side and helping you to make profits?
At work everyone believes that they are getting something (such as money) and are giving something in return (such as time and effort). They are weighing up in their mind “how much am I giving, how much am I getting in return and is this fair?” If they believe that they are:
- Giving too much or
- Getting too little
- Then this is unfair, and they won’t work well (poor productivity – how much they produce).
The manager needs to:
- Know what people are thinking about what they are giving and getting and
- Manage the giving or getting side
- So that people become more productive
In a smaller business you sometimes cannot afford to pay more or provide the sort of benefits (pensions, medical aid, bursaries etc.) that larger firms can and so the staff may be unhappy, not be productive and be on the look-out for something better.
How do you increase happiness without money?
- Job security – knowing that you will still have a job next year – and that you will get paid on time.
- Contributing to the success of the business. If you train staff to have the knowledge and skills to do a better job and you then encourage and support them to do this then they are happier, and you increase profits. If you then share some of these profits with the staff that helped you to make them then everyone wins!
- To be taken seriously and treated with respect. If you do this then staff are happier, and they will also treat your customers with respect.
- To be part of the team. You can often do this by having a regular briefing on what your plans are and discussing ideas. Because staff are doing the actual work they will often have good ideas and then will be motivated to implement them – it was their idea after all!
Staff leaving you all the time is a can destroy significant value. If you implement the strategy above, you will have happier staff that are more productive and a more profitable business.