Preparing for sale

Picture this – You’ve got your number, you know that a sale at that number will sustain the life that you want to live post exit, everything’s rosy.

Unexpectedly, a buyer knocks on your door with an offer. Your number’s £3m and they’re prepared to meet that value. But is the business ready?

Our experience, and the experience of a number of our professional connections, is that most businesses aren’t ready. There are a number of things that businesses and business owners must do to ensure they’re ready for sale. Or that shot at an exit on your terms could suddenly be at <75% of your number, if at all.

I’ll run through a number of the things a business must do to prepare with a focus on creative and digital agencies, for whom it’s particularly important due to their foundation on ideas, client relationships and key people, not on selling anything that’s particularly tangible.

Strong management team

A strong management team independent of the owner needs to be built up over the long term and putting more trust into the next tier of management and the key account operators is key. Without a strong management team, a buyer will be worried that the key clients are going to leave when the owner who is exiting, leaving them with plenty of overheads, less revenue and fewer ideas.

As an owner, if you’re solely managing the key client relationships and aren’t trusting the next generation to step up, you won’t be able to exit on the terms that you want, or may have to remain in the business a lot longer than you’d initially hoped and planned for.

Personal plan post exit

One of the main reasons a transaction breaks down is due to the owner’s emotional readiness. A lot of creative agencies are founder built and the founders have expended a significant amount of their life building their businesses. Their identity is intertwined with the identity of the business and it is common for the founder to have jitters when it comes to the crunch. The founder needs to have a plan as to how to fill their time post exit, similar to how a modern sportsman would do on approaching retirement, and to build confidence in that new identity in good time. A good financial planner who has been through this process before with clients can help make plans for the future.

Due diligence ready

Alongside emotional readiness, the business must keep their accounts ready for a sale, i.e the potential buyer must be able to get the account information that they need in short order, so that they can complete their due diligence. Modern cloud based accounting software should help with this. One mistake owner’s make is that a sale is on their agenda, most of the time it isn’t, it’s firmly on the buyer’s timeline and it pays to constantly have the business ready for a sale should an offer come in from a buyer that needs to move quickly.

Management team incentives

Do the key staff members have a stake in the business? If the staff members have worked with the owner for a number of years and have built up trust with and loyalty to that person, there’s a good chance that they may leave when the owner exits. Shareholdings or share options are one way of locking in these key staff members for the long term to ensure continuity for the purchaser.

Contracts

Are the key client signed up for the long term? Building client relationships with long term contracts protects against significant revenue generating clients walking away at short notice. Moving from short term projects to longer term contracts is valuable to a buyer. A good corporate lawyer can help with this.

If you’re interested in quantifying your number and helping to plan towards a business sale along with life post sale, then feel free to get in touch by sending me an email at theteam@xentum.co.uk. We’re a wealth management company that aren’t focused on investments but on helping business owners in the creative, digital and tech industries to take control of their personal finances, using data, empathy and a forward thinking service.