My clients often ask, “When should I start thinking about selling my business?”
Business owners tend to assume there will come a time in the business life cycle when succession planning starts to feel right – which is why my answer can catch them a little off guard. “Right now” is when they should start, I tell them, because it’s a possibility they should always be prepared for.
It’s understandable that many businesses aren’t ready for a sale, given that owners are focused on working in and expanding their businesses – sometimes not giving much thought to what comes after, or what their business looks like from an outsider’s perspective.
In fact, it’s estimated that fewer than 50% of businesses expecting to transition in the next five years have any sort of plan in place. The truth is, most business owners don’t think about selling their business until either an offer to purchase lands in front of them or a significant life event takes place – whether it’s an illness, family issue or shareholder dispute.
The challenge is that these conditions have a tendency to hurry the sale and aren’t always the best for maximizing value, or finding the right person or company to carry on your legacy.
It is critical to give thought to a plan years before an exit from the business, because it allows you to better time market cycles, manoeuvre through a thoughtful transition and ultimately realize a higher price for the business. In my experience, opportunity comes when you least expect it – and it’s not uncommon for a buyer to approach with a value-added transaction or strong purchase offer that should be considered.
When I’m helping my clients ready their business for a sale, there are a few strategic areas on which we focus. Here are the five recommended ways to get started:
1. Learn how to make yourself redundant. It may sound a little awkward, but minimizing personal goodwill ahead of a sale is what will ultimately enable the business to carry on strong without you.
2. Ensure your financial reporting is strong. To be attractive for sale, you’ll need to have a proper accounting system with modules and reporting that allows you to actively track and monitor key performance indicators, project status and customer data.
3. Assess your working capital. Actively managing working capital not only will free up cash for shareholders and reduce the amount you need to leave behind in a sale, but also demonstrates the business is well run.
4. Think about best practices. Examples include documentation – are all your customer contracts on hand and are your leases signed? Do you have a shareholder agreement in place and is it actually executed?
5. Surround yourself with great people. A strong team of management and advisors will help you make yourself redundant – and advisers who have seen the process before and understand where hurdles may arise can provide a valuable sounding board. Developing these relationships early in the business life cycle will only add value throughout.
These considerations will help you run your business in a sale-ready way, so when and if an opportunity arises, you’re well positioned to make a decision. What’s more, by putting this strategic advice into practice, you’re also increasing the likelihood for an opportunity to arise, because your business will look that much better to potential buyers. •
Julie Afanasiff is a partner at Sequeira Partners.