Preparing a business for sale

[jack52]

I am looking to sell my business in 5 years time

- I have researched a few things online but the advice is too generic
- I am looking for tailored advice for my business (and prepared to pay for that) but I have been unimpressed with the firms I have contacted regarding this so far.
- The business excluding assets is probably worth effectively zero right now (since i am responsible for 100% of the revenue). But might be able to train someone to replace me.

Any suggestions?

 

[Ozzy]

How good it is to see someone with a sensible and logical, and forward planning, approach.

Not sure if @Clinton provides the consultative service you're looking for, but he may know someone who does.

 

[Clinton]

Thanks for the mention, Ozzy.

@jack52, if the business is not worth anything right now, your best bet is to not pay for advice. Invest in a good exit planning book or two and spend some time on my website where there's a ton of information for small business owners on this topic (and links to various other resources).

Quality advice on this subject doesn't come cheap. Perhaps the firms you found were offering free advice or advice at the 'cheap' end of the market.

If you want personalised advice, and you've got a budget of a grand or two per month, I can introduce you to 'exit planners' who'll work alongside you for a year or two - a few hours per month - to ensure you're headed in the right direction for an eventual sale. (I'm not on commission with any of them!)

Some generic advice: The earlier you train someone to replace you and actually replace you, the better. Buyers will want to see performance of the business under that person, not under you. And if it's just one person, they'll want to protect themselves against that person leaving / dying. Ideally, you'll have a management TEAM in place with a succession plan and employees in the wing who are trained and can move up to MD if the need ever arises.

I would put all that in place first before paying for exit planning advice / assistance.

 

[FreddyG]

I went through much the same process. I had a handful of freelancers who worked for me on a regular basis. Then someone at a UK company suggested that my assets might be worth something, but wanted to 'see' those assets in advance - i.e. steal the addresses of my people. I broke off all contact and refused to complete work already agreed to for that company.

I then managed to land on my feet by accident and was able to build up a considerable body of business with a rival company and of course I took my people with me. By the time I was ready to sell and they were ready to buy, five or six years had gone by and I had 160-170 freelancers and began to develop a real structure. I had to! There was no way I could manage all those people's work.

It took another two years of restructuring to negotiate a deal and get the thing over the line. It then took a year for the other side to make payment in three parts, spread out over three financial years.

It sounds as if you are in much the same position - one man band that is in development into a 'real' company, with full-time department heads and areas of responsibility, etc., etc. In which case, five years is almost certainly not enough! Think 'Ten' as a good target!

Three or four years ago, we sold a company that was really ready to go. We had received a few offers, all of which we turned down. It was a small operation and we did not want it, despite it being on our books for about 25-30 years. But it had to be worth more than offered! In the end, we sold it very well and were able to take a 10% deposit, which bought the purchaser a one-year option. After one year, the deal went through.

What I am trying to tell you is, these things can take a bloody long time!

 

[jack52]

thanks @Clinton will take a look at your website.

Certainty 1k-2k / mo is within budget but creating a mangement 'team' is more problematic.

As a bit of background the business is in the energy consulting sector and the business comes from people I have worked with in the past 20 or so years. It is effectively a part time job for one person [usually 30 hrs a week although more if very busy] - however - it is well paid.

I say part time because I have a second 'job/hobby' as a flight instructor.

For a full management team I wouldn't be able to pay market salaries which in my niche are rather high (and less risk of course joining a large corporate).

So one option is just continue as usual then close it / extract cash in tax efficient manner or alternatively get some value out of the operating business.

 

[Clinton]

jack52, I'll drop you a DM.

But, yes, you've recognised the problem - the business is dependent on you.

And buyers want a business that is not dependent on the owner.

Making that transistion is probably the small business owner's biggest challenge.

It can be done in any business, including yours, but it's not easy.

One has to be prepared to take risks, bear the expense of training staff (only to find them leave), explore alternate sources to drive clients (and maybe waste a few tens of thousands on Google Ads or whatever in the process) etc etc.

Converting a project like this, however profitable, from a job to a business takes time, takes resources, takes a business owner willing to shoulder risks, takes a business owner who is willing and able to "let go".

I wouldn't advise you to pay for an exit planner as this stage.

 

[jack52]

So one possibility that has come up, is the owner of a similar business to mine (who i know well) wishes to sell their business. Now the main difference is that business has a team in place to do all the day-to-day stuff and the owner (now in late 70s) is providing oversight but i believe only working one day a week.

I was thinking of buying their business and getting the existing team to run my business as well.

Is this crazy?

 

[Ozzy]

Is this crazy?

Not crazy, but will come with a lot of risk and due diligence you’d need to cover.

Namely, rhetorical question, what makes you think they’ll want to and would be able to run your business for you?

 

[jack52]

Not crazy, but will come with a lot of risk and due diligence you’d need to cover.

Namely, rhetorical question, what makes you think they’ll want to and would be able to run your business for you?

Well what they do currently is basically exactly the same. It will probably be necessary to hire as well with the extra workload.

What I am looking for are business owners who have attempted such a thing before (combining your business with another and then selling the combination a few years down the line). Perhaps there are some on this site?

 

[Ozzy]

Well what they do currently is basically exactly the same.

My question wasn't really a question to answer, hence rhetorical, but more a consideration to look carefully over before committing to anything.

There may be others here with the experience you are looking for, but I have sold a business that was merged into another in the way you describe. My business was the competitor business you describe in your scenario, and it can work, yes.

Reflecting on everything in this thread, though, all things considered... My thoughts are that buying the competitor is the high-risk, high-reward approach and the advice above about building a management team for your business as it is, is the lower risk and subsequently might be the lower-reward approach. Just my opinion on all the above, could be wrong