Selling your company: timing is everything
For many business owners, the sale of a company is both an opportunity and a once-in-a- lifetime event. As well as this, it is an emotional event. Managing Partner Jonny Parkinson stresses the importance of a good exit strategy and shares some tips for business owners to consider. “Take your time, but recognise also that you are not always in control of the timing,” he says.
Jonny Parkinson, Managing Partner of Marktlink UK, a firm that advises entrepreneurs on business sales, acquisitions and mergers, highlights several potential exit strategies.
A sale can be done in multiple ways. “You can dispose of your business to strategic buyers, an investment fund, a family office, your management team or an individual,” Jonny illustrates.
One of the strategies that is growing in popularity is the pre-exit option, where you sell your company in stages and gradually reduce your stake as an owner. This strategy is gaining prominence in the UK and there are an increasing number of acquirers looking to support such a route.
(Partially) selling is mainly a matter of timing, and in the function of this, Jonny cites these tips.
1. Take the time for a thorough preparation When preparing a business for sale, a business owner must realise that it takes thorough preparation to map out and optimise all aspects of the business. “This includes drawing up a business plan, positioning the business in the market today and in the future, assessing dependency on customers, suppliers, and the owner, assessing financial reporting as well as performance, the presence of real estate, and identifying potential risks and challenges,” Jonny lists.
How much time is needed really depends from company to company. “For a company that is in good shape and ready for sale, it can take up to two months to prepare the documentation,” he suggests. But if certain (strategic, operational, or financial) interventions still need to happen, such as an additional acquisition, appointing a necessary new manager, or adjusting sales performance, it can take much longer.
2. Look how to optimise your business model
One of the main reasons to start preparing your business for sale on time is that the process of optimising your business model can be time-consuming, Parkinson stresses. “By starting on time, you have the opportunity to substantially increase the value of your business and improve it in the long term, which can increase shareholder value,” he states. “This could include optimising your business processes, better control over costs and margins, developing new products or services, expanding your customer base geographically, or getting the business model ready to scale up.”
3. Working ‘on’ rather than ‘in’ your business
It is also important to prepare your management team for the business acquisition as well as possible. Handing over duties and responsibilities can be difficult for any shareholder, but acquirers want certainty and to minimise disruption after a deal has been done. The best way of offering this is by having a robust management team that is able to continue the operations on a day-to-day basis in the shareholder’s absence.
4. Put it on the agenda
Finally, Parkinson wants to add important additional context. “It is indeed important to take your time in preparing to sell your business. But sometimes you don’t decide the timing yourself, and the market determines when you can sell, for example, if an acquirer approaches you to take over your company. You shouldn’t or can’t always wait until you want to sell yourself,” he suggests.
This is why Jonny Parkinson recommends putting a possible sale or valuation as a business on the agenda regularly, say annually. “That way, as a business owner, you are always prepared,” he says.
Is it opportune to value a company in case there is no intention to sell? “A sale sometimes comes unexpectedly and potential buyers tend to show interest in companies that are not for sale, are well organised, and run smoothly. A proactive valuation exposes potential bottlenecks that can then be addressed.”
So a valuation of a company should not be done solely for the function of a sale. “Besides giving a shareholder an idea of the potential value of the company, it also provides a basis for future optimisation of shareholder value.”