How to know when it’s time to sell your business (and how to do it)
Thursday, May 7, 2015/
Selling your business doesn’t have to mean relinquishing control. Being absorbed into a larger company or bringing in outside investors can help to grow your business exponentially.
If you are under-resourced, time poor, risk averse, struggling to grow or retain employees, or have financial issues – it might be time to consider selling or finding a business partner.
The key issues that hinder SME growth are:
1. Reliance on an individual, rather than an expert team
When people start businesses, they get caught up trying to do it all. However, a heavy reliance on one staff member means the value of the business ultimately starts and finishes with that one staff member.
Whilst you remain essential to the success of your business, it will be impossible for you to both grow the business and have a life outside of work. Whether you’re in the office or not, you need people with complementary skills to your own to help grow the business and deliver the best possible product or service.
2. Time-poor leaders
Many businesses are run by highly qualified people who are great at their chosen area of expertise. Whilst they may not be lacking in talent, they are often short of resources.
When you’re a small growing business, investing in staff to pick up the workload can be financially daunting, leading many owners to continue working on tasks which would be better delegated to a team member.
As an investor, I see this a lot. It’s not a badge of honour to be busy; rather, it’s an indication that your business is either poorly resourced or you are not good at delegating. If you can’t make the time to see your kids and family, or leave at a reasonable hour on a regular basis – your business may need help.
If you are time poor, you are also likely to be both risk and innovation averse. This means that your business may miss out on opportunities to innovate, grow and benefit from new ways of working that will ultimately save you time and money.
3. Insistence on controlling equity
A question that I often hear from SME owners is how much equity they should retain, in order to grow their business under an acquisition.
Retaining 100% of equity will only get business owners as far as their business can afford to grow. And unless the equity in the business is producing dividends each year, it has little value.
Giving up or selling equity is crucial to growing your business. If you partner with the right buyer, a smaller percentage of equity may be worth significantly more than your previous ownership level.
Controlling equity is only an issue if your partnership is not one based on teamwork and trust. Partners should be able to make decisions together and work through issues. If you make a decision because you own 51%, then the trust and partnership value diminishes significantly.
In managing the sell: the do’s and don’ts
Every sale and negotiation is different. Here are some tips to manage the process:
1. Negotiate genuinely
Just as I would advise investors in businesses to only enter into discussions with businesses that they genuinely think will succeed with the assistance of their expertise, I would advise business owners looking to sell to be honest about what their objectives are from the get-go.
It is best to be transparent about any issues that your business faces and to share your hopes for what an investor or acquisition might be able to do for the business. Outline exactly what your business needs in order to grow to get the best person at your table. Any deal should have both parties leaving equally happy with the result. Anything less than this will create bitterness from the get-go.
2. Get to know the people
Have an emotional understanding of the human beings you are considering partnering with. Understand their fears and desires. Understand them as people. A good business partner is emotionally aware of the other partner’s situation in life at any given time. This is critical to a partnership’s success.
3. Understand the value of resources
One of the biggest benefits of being acquired as a business is gaining access to a wider pool of experts and resources.
For example, at Bastion Group, we have shared resources across the group to assist all of our businesses, including social media, innovation, human resources and finance.
Get to know the team you’ll be calling on to understand how they work. Are they equipped to understand your business requirements? Do they have runs on the board that they can demonstrate to you? Are they experienced in managing growing teams and your type of product or service? And most importantly – do you genuinely like spending time with them?
4. Communicate honestly and regularly
During times of change, it’s essential you communicate consistently and regularly with your stakeholders, investors and staff. If you are being acquired, there will be a lot of questions from your investors, team, board members and potentially press, so it’s essential to keep people involved during the main stages of change. A good partner can assist you with this process.
The same of course applies for any potential investor who is looking to acquire your business. At Bastion Group, we have an onboarding process in place to ensure any new SME or team member joining the group has the opportunity to understand every facet of the business and how it can help them to grow.
5. Remember the bigger goal
The most common stalling point during any negotiation process is around equity. Don’t be too precious about retaining every last percentage. It’s about compromise. Remember – if you don’t let experts into the business, you will continue going as you have been.
Instead of taking a ‘my way is the only way’ approach – take your time and listen to as many people as you can to land on what the right decision is for you.
A small relinquishing of equity for the benefit of the longer-term goal will free you from the day to day, and let you focus on the part of the business you love. Which is why you got into the business in the first place, right?
Fergus Watts is the chief executive of Bastion Group, which creates startups and acquires businesses for a living.
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