In 2008 I sold the majority shareholding in Pacific Direct. I had not intended to be out of the business within only a few months; I was infact removed from the board and sacked which was a sad ending but alas all too typical for the well-meaning Entrepreneur who is trying to de-risk some of the immense investments we make to build companies.
I had worked hard to build for Pacific Direct for seventeen years and I did indeed plan for exit, but I am still not sure, first time around that anything can indeed prepare one for exit.
Before you read further I suggest, if it is an exit you are considering, first of all consider the many more types of exit, the numerous ways you can change your life and extract yourself from a well run and well managed company. Do not think you need to sell the whole business. I believe too many people leap in one big leap and there is much to be considered in alternative options that are indeed available.
Here are some of the valuable lessons I learned in the process of exiting my business.
- Don’t exit too early; you might regret it. If you’re thinking about exiting, ask yourself why you want to go. It might be that what you really need to do is hire more staff to take the pressure off, or that you need to change the structure of the business slightly. Have you really planned to maximise the value of exit and been honest regarding your own leadership failings? Does your management team really lead and manage without your dictatorship?
- Check in with yourself as to why you want to sell. If you merely want to bank some money, rest assured you need not sell in order to achieve this. If you’re thinking you want to stop working, ask yourself whether you’re just having a bad week – could you really stand to stop working? If you’re wanting to sell so that you can spend more time with family, again you may not need to sell – what you really need is a better team around you and greater self discipline. Too many people sell too early, and for the wrong reason. In my opinion, when you are bored, it’s time to sell. Before that point, there are usually other, better options. For me, this often started with giving myself a raise!
- It is also worth bearing in mind that if your desire to exit comes from feeling chaotic and overwhelmed in your position, this will be very clear to potential buyers. Nobody will be keep to purchase a company that is not already running efficiently and smoothly with reliable staff members. Better to work on getting your business to that point before you attempt to sell – and by that point you may well find that you don’t actually want to sell after all, once things are running more smoothly.
- Have realistic expectations when it comes to valuation. Remember that no two businesses are the same and even if you’ve seen a company that looks the same as yours sell for X amount, there is no guarantee that yours will too. Setting a lower price may mean that you attract more initial attention – which will then drive a little competition and potentially push the price up. Equally don’t be unfraid of a trade sale; sometimes the synergies can be vast.
- Prepare well in advance. It takes 18 to 24 months to prepare for an exit. The hardest thing I’ve ever done was keep my plans to exit a near secret from my whole team. Deal with any issues that may impact on your exit process; make sure your business is running at peak performance, run your own due diligence check list on your own divisions and operations and sort the gaps before beginning any process.
- Have a strategy in place for growth. The fact you are intending to exit does not mean you can rest on your laurels and not continue to push your business forward until the point that you sell. Any prospective buyer will want to see that there is both potential and a plan for growth in the business.
- Ensure your reporting is robust and accurate. I have published several blog posts lately regarding the reports you need as a business owner; these figures should be at your fingertips for any potential buyers. The relevant people should be used to producing these reports on a regular basis so that reporting runs like clockwork with no mistakes or omissions. I really believe there is no substitute for crystal clear financial information in a company, and it is well worth having this in place whether you intend to sell or not.
- Never go into the stress of exit talks without absolute clarity on what you want from the deal. Have a BATNA (best alternative to a negotiated agreement) and make sure you have a note of the key terms you personally require before walking away.
- Ensure maximum value before beginning negotiations. Things like licenses, contracts with decent term time remaining, staff with good contracts and other assets should be secured. Don’t leave a difficult conversation until it’s too late, and don’t do it while you’re in negotiations to sell.
- Be sure to understand the terms of your negotiations, and any restrictions that apply. Be very clear that even if you stay on as CEO in the short term (as I did), the habitual decisions you made when it was your company will no longer be yours to make – and this can be a bitter pill to swallow. I stayed on as CEO at Pacific Direct as they didn’t have a replacement. I found myself a less than 20% shareholder in the company that used to be mine. This was really challenging as I still had the attitude of putting my business first – but it wasn’t my business any longer. This habit is hard to break.
- Stating the obvious: ensure you have a detailed set of standard operating procedures documented. In the day to day running of a business this sort of thing is often forgotten or left for another day, but when it comes to selling this is the sort of thing prospective buyers will want to see. Organise your procedural documents to the point that if every member of your team disappeared overnight, a stranger could come in and carry on where they left off. This includes things like your marketing strategy and sales procedures as well as back office processes.
- Ensure the success of the business does not rest on your shoulders. This goes back to ensuring you have a great team around you. If the business is – or appears to be – only running well because you are there holding everything together or making all the sales, you may find it hard to exit. After all, without you there are no guarantees the current profitability and growth will continue and this will affect saleability.
- Insure against broken warranties. This may save you a fortune; remember the deal is not done until the cash is actually in the bank and the warenty period expired. Decisions you make all come at a price or the multiple if there is pay-back.
- Stay focused until you leave. Once you have decided you intend to sell, it might be hard to remain as focused and driven as you have previously been – after all, before long this will no longer be your ship to steer. Remember though that anyone looking at your business will want to see that it is still performing well and exceeding targets where possible. If your business begins to decline before you leave, this will affect the overall value.