Global management and M&A consultancy SI Partners tell us their pro-tips for selling your business.
There are a lot of tips and advice out there to help you grow your business the right way, but what happens when you’ve done everything right and are ready to reap the rewards of your hard work? Selling up and moving onto a fresh project is something a lot of entrepreneurs aspire to do, so we spoke to Tristan Rice, partner at global management and M&A consultancy SI Partners, about how long it takes to sell a business and the practical tips to get it done.
What is the usual time frame for selling a business, from inception to sale?
Most businesses will undertake some sort of transaction within their first ten years. They tend to hit our radar three to four years in, which would be three or four years prior to sale. And the nature of our work might be consultancy to get them to the next stage, or advising on the sale of the business. Don’t underestimate how long it’ll take. The actual sale process will probably take a year from start to finish.
When is the best time to start a sale process?
The most important thing is to start the process while the business still has plenty of growth potential and you have energy and enthusiasm to deliver it. Most buyers are looking for growth and entrepreneurial management – they don’t want to buy a business that has peaked and that the management are looking to leave. You also need to think quite far ahead because, in most cases, a sale is a three/four-year process beyond the completion date and, much of the value paid is based on the business’s future performance.
What three tips would you give to business owners who are looking to sell?
• Be clear about your objectives – professional, financial and future commitment to the business.
• Be honest about where your business is today in relation to those objectives, in other words, what’s the gap between what you’re trying to achieve and where you are today?
• Develop a route map to get you from where you are now to where you need to be. Ensure you know what you need to do in order to get there.
• Think about how an acquirer might be able to achieve your business objectives better or faster, as well as how they can add value to your business. This will inform the logic of your approach and start the conversation around what you can build together, instead of just what you’ve done in the past.
• What do you want?
• Where are you now?
• How do we get you there?
Anything else you think ambitious business owners might not be aware of?
In relation to a sale, it’s worth making sure that the ownership of the business and the economic rights are sitting in the right place. In other words, if you own all of the business, whilst that is great and you get all the money, it’s probably going to make the business less attractive to acquire and result in them paying less money for it. They’ll be worried that all the money will go to one person and that gives them very little hold over any of the other senior people in the business.
When you sell your business, you get money in exchange for your shares. In addition to this, the buyer will want lots of commitments from you in terms of your links to the business, which is essential for deferred payments. If senior management aren’t involed in the deal, because they don’t own any of the shares, then the buyers have no hold over them. They can just disappear if they want.
How do you go about divvying up shares in a beneficial way?
For a founder, it’s worth thinking that, even though you may own all of it today, if you want to make your team excited about coming on the growth journey with you, then they have to feel like they have a stake. Spreading equity among your team ensures a sense of ownership and a common goal. Most people think about this way too late in the process, when it’s something they should be thinking about years in advance. Trying to move shares around immediately prior to a sale is incredibly difficult from a tax and expense point of view.
Our first interview with Tristan, where he dicusses the common problems faced by business owners and how to solve them, can be read here.
Check out more ways to grow your business for success on Your Ready Business.