The Decision to Sell

Selling your business will probably be one of the landmark decisions of your life. Your exit strategy should be meticulously planned so as to minimise conflict and maximise the value and/or the strategic objectives of your disposal.

A good starting point is to review your thinking and decision-making about the sale. Be clear on your motives and the implications and, if it is appropriate, ensure you have considered the alternatives. For example, if your aim is to raise funds, have you fully considered other potential sources or perhaps either a partial sale or a disposal of assets? If retirement is your goal and you have sufficient funds in place, are there others, including family members, who might take the reins under your continued backseat ownership?

Objectives

Assuming you have reached the decision-point, be clear on what you personally want from the sale. The largest possible amount of cash might be the obvious goal, but perhaps you have an interest in the future shape and reputation of a business that bears your name and your sweat equity and would settle for a lower sum from the “right” buyer. Or there might be competitive issues related to your other business interests that mean you would not want to see the company fall into the “wrong” hands at any price.

And what sort of financial terms would you be prepared to accept? These might range for payment in full and final settlement at the outset, through phased payments to profit- and performance-related compensation. Might you be willing to take paper in the form of loan stock or equity from the purchaser?

It is also important to assess the consequences of selling – on your employees, your family, other shareholders – and to have a clear idea of what you want to achieve for each of them. This is not necessarily an easy process.

In a sole proprietorship, where the owner is heavily involved in the day-to-day running of the business, there could be powerful relationships at stake and a genuine concern about the implications of your withdrawal from the business. Will your departure lead to instability. This is something potential buyers would spot and it may be that concerns could be met through some form of support and mentoring in the early stages of new ownership.

In a family owned business, or one in which family succession could be an issue, a good part of the challenge is having buy-in on motives and desired outcomes before the process starts and an agreement on how disputes might be resolved, usually through a third party such as your adviser. The key is to have, at the outset, a valuation and a preferred buyer strategy on which all parties are agreed.

With more formal board structures, much will depend on which board members and senior managers, if any, might have a part to play in the business under its new ownership. Be alert here for rivalries that, if they surface, could disrupt the current performance of the business and undermine the potential for a good deal on the sale.

This thought process will help you establish a rationale for your decisions and will help your adviser to chart the best route to achieve your desired outcomes.

Value and timing

The starting point for that route is an assessment not only of the value of the business but also its marketability and the timing of a sale. Even a solid financial performance and attractive valuation of the assets and goodwill will only take you so far if the economic climate is declining or if there are fundamental weaknesses in your management team or cracks and creaks in your plant. Can you be flexible on timing? Can you correct shortcomings? The further ahead you are able to plan, the more likely you are to be able to take corrective action to ensure your business is in good shape, the graphs are pointing upwards, and that you can choose the most opportune time to sell.