How to sell a business Lesson #9: What do I need to do to be ready?
The terms “Exit Ready” and “Investor Ready” have become very popular when discussing what might need to happen in the period running up to when an owner might wish to merge or exit their business. These terms attempt to encapsulate the work that needs to go on inside a business to enable the business to be as attractive as possible to investors and acquirers.
We first wrote on this important topic in 2016 where we set out 10 of the most important elements to consider when preparing for a sale. Click here to read it. Our view then was quite contrarian, and it hasn’t changed, in so far as we don’t like the idea of specially preparing a business for an exit. Rather we feel that if a business is run well, in the interests of the current shareholders, then it’s always ready.
In this blog we concentrate on three elements to “readiness” which we prefer to call, “running your business well and in your own best interest” which is a deeper dive into Strategy, Planning and Execution.
When somebody wishes to buy a business, they are simply buying the future of the business. It therefore stands to reason that the future of the business must be correctly articulated-this starts with the strategy. Yes, we agree this word is overused in the business lexicon by far, and it often lacks a good definition. Our definition is simple – the strategy sets out the direction the business is going in. This needs to be articulated in relation to the market place the business operates in. Too often we see “strategy in a bubble” basically a naval gaze by management accompanied by a big wish list.
A good strategy will cover, the businesses reason for being, sector evaluation, market positioning and the essential value proposition. The strategy needs to be defensible and articulate why the business has an enduring future. Buyers love it when there is a defensible thought-out strategy in place that make sense and demonstrates the enduring future of the company.
As we said, strategy deals with direction. It should be the result of quite a lot of rigour and analysis, internal and external and ultimately be articulated on a single page that sets out the next five years in a way that everyone can understand and buy-into. It is normally reviewed every six months.
Once the strategy is understood and properly articulated then it needs developing into a plan. The plan must include the organisational structure, operational and sales plans and finally a financial forecast. Ideally a 3-way forecast and model than can be flexed based upon various sensitivities. This can take some effort but it’s worth it. The next twelve months are set out monthly in detail and then the monthly management accounts report against it.
Buyers absolutely love a well thought-out forecast which includes the key assumptions and drives of the plan. To not have such a plan, not only hinders the management, but it also devalues the business which in effect, without a forecast, a vendor is saying, “buy my business and hope for the best” Hope is not a plan.
We get push back that a particular business is impossible to forecast, we don’t buy it. In fact, we have yet to find a business we cannot have a sensible go at forecasting. Furthermore, we would say because of the difficulties in certain situations it’s even more important to do a forecast.
“To me, ideas are worth nothing unless executed. Execution is worth millions.”
Steve Jobs said it well. The ability of the management to execute on the plans is essential. There is a popular myth among business owners wishing to exit, that a buyer will rustle up a new leader to take over and run the company, as the owner sails off into the sunset with a big fat cheque! This rarely if ever happens. We would say that one of the biggest single concerns of buyers is the succession element around leadership and management, in other words, who will run the business and competently execute the plan? We think that this is part of a broader discussion around organisational design which can and should be tackled ahead of any kind of exit event.
We are doing tremendous work with many clients to help future proof their businesses well ahead of the actual exit. I am immensely proud of this work as we believe it helps create tremendous value for owners as well as provide peace of mind. Yes, it does require some effort and some discipline, but we think the rewards far outweigh the effort and any costs.
Recently, we helped an owner who was desperate to sell his business, and could not, to develop a strategy and plan and began to support him in the execution of the plan. In two short years he went from wanting to sell his business, to never wanting to sell it. He now knows where he is going and why, has a solid plan and reporting and has done some great organisational design so he is now doing what he is good at and what he loves. The dividends he now enjoys, resulting from good planning and management are a great alternate for him from a one-time exit!
If you have any questions about strategy, planning and execution don’t hesitate to call me or one of my partners anytime.