If you’re planning on selling your business, here are eleven tips I learned from selling mine that you should remember for a successful and positive exit strategy.
For many people, selling their business is the culmination of a successful venture. I was recently asked to speak about the experience of letting mine go and what things you should consider when doing so, too. Here are my eleven tips for a grand exit.
Tips About Pre-Selling Your Business
Let's start with a few tips on what to do before you actually sell, such as building the correct type of business buyers will be interested in, engaging early with potentially interested parties, gauging various options, and making your business run itself.
1. Build the Right Business
There are, of course, many different types of businesses. Those of a consulting nature, for instance, generally rely on the people. The issue with trying to sell one of them is that, well, people can leave. Whereas if you build a business that is centred around, for example, a software product (or one that has annuity revenue in some way because clients are paying for a service and they are regularly paying because they are happy with it), then you get a higher value.
Buyers value annuity revenue, so there’s nothing wrong with having a consulting business that depends on you and your time, but if you want to sell and exit it, you need to work out how the revenue won’t sail off into the sunset with you. And even if you achieve that you need to work out how buyers will have confidence that your revenue stream isn’t at risk and will continue and hopefully grow with some certainty.
Getting an annuity revenue is highly important to the value of a business. So, my first tip is: If you plan on selling, make sure you’re building the right business. There are lots of ways of doing this. Software development is a popular choice, but there are other industries that have high retainers or allow you to build IP.
2. Engage Early
Engaging early with people interested in buying your business is very important. I was actually able to sell my business five times, but I pulled out of the first four deals because they didn’t feel right. These opportunities were all valuable learning experiences, though, and I learned from them.
One of the first offers I received was from a big 4 audit form. They wanted me to become a partner with a seven-year earn-out. I didn't want that, so I pulled out, but here's the twist: They ended up becoming one of our biggest clients! They've actually helped us build products and referred us to many people. At the time, they were rather upset. What they wanted was our development skills and to have me running it. But we could still do that for them; they didn't need to buy us to get that. On top of becoming one of our largest clients, they also helped us develop the software tools they wanted - and we owned the software not them.
Every time I nearly sold my business, I learned something and gained contacts or clients.
My second tip, then, is to engage early with potential buyers and evaluate what they have to offer. Which takes me to the next point: choice.
3. Consider Your Choices
The third key thing you need to keep in mind when selling your business is to truly explore the number of choices you have for doing so. If you are going through negotiation and you only have one potential buyer, then you are in a fragile negotiating position. It's a much better idea to scour the market and obtain as many offers as possible from as many sources as possible before committing to selling.
There might be some businesses that you have never heard of or thought would never be interested in buying your company that are actually interested in it for weirdly strategic reasons. So, make sure you keep your mind open and consider all options throughout the negotiation phase; don't go down the route of siding with one party and having no alternative of getting out. And, if you can't have multiple people bidding for your business, then make sure you are happy to continue running that company, and you are not committed to the sale mentally before you have done the deal.
In short, my third tip is to fully explore the market, be open to various options, and only sell if you are ready.
4. Provide Uniqueness
There is a lot of value in uniqueness. If you are the only business that can do something, or have a very specific way of doing things that no other players are using, then that increases the value of your company.
It's uncommon for a business to do something entirely novel. In most cases, there will be several companies competing to promote the same service in your same market space. This was the case with us; our uniqueness wasn't our software product. I would like to think it was our people that made us stand out, but in all honesty, there are capable and skilled experts in most organisations. What truly set us apart from our competitors was the sectors that we dominated. For example, we were leaders in electronic board papers for pensions funds, universities, social housing and hospital trusts. There simply was no way our competitors could break into that same market without buying us, so they had no option but to do so to access those sectors.
My fourth tip is, then, to make sure you provide something unique - and that you are very aware of what that uniqueness is, so you can promote it.
5. Make Your Business Run Itself
Your ultimate objective should always be to make your business run itself. My company was my baby, and when I handed it over, I didn't want to be the nanny, for that would've actually been too painful. So, even though contractually, I was required to be part of the transition for three months, I engineered a two-week exit. The purchaser was happy with it because they saw they didn't need me because the business ran itself, so I was able to leave early.
My fifth tip is to make your business run itself or make yourself redundant. Now, how do you do this? One, by using a combination of systems, processes and delegation. The whole thing should start years in advance. It's essential to keep in mind that this step is more about psychology than execution (although I've placed it higher in this list because you should work on it from the moment you launch your company). I'm not going to lie: It will be hard. Most founders start their journey doing everything and being (in their eyes) the best at it. In the long term, though, making yourself redundant is one of the best things you can do to guarantee a smooth exit.
Tips About the Process of Selling
We’ve covered a few tips for what to do before you sell. Now, let’s go through some of the things I learned about the process of transferring your company to a buyer.
6. Balance Likability and Being a Threat
When you are selling a business, you have to find a delicate balance between being a threat to that company and remaining likeable. I remember nicely threatening the people who bought my business, hinting at how our strategy could undermine their business. There's a fine harmony here, so you need to do this in a way that helps you get perceived not as you lording it over them or boasting about our company but instead coming across as likeable.
You have to like and get on with people if you want to do a deal with them. After all, you’ll probably have to spend a lot of time working alongside your buyers to close the purchase. At the same time, though, you have to present yourself as a threat to their business. My sixth tip: Be both likeable and a threat. It’s a matter of smiling while telling them you are going to take them down!
7. Be ballsy with your price
It’s a standard negotiation tactic that people anchor to the first offer, whichever side it’s from. Theory states the person buying should go in low and the person selling should go in high. They key being to get in first.
Statistical evidence supports this: If you are selling and you get in first high with a high price, you are more likely to settle on a high price. If you are buying and you get in first with a low price, you are more likely to get it for a lower price.
It’s hard when you are selling a business to go in first with your selling price as you don’t always know what a realistic price is and sometimes businesses sell for ridiculous amounts for reasons the owner might not understand or be aware of. You could be shooting yourself in the foot. You feel you have to wait for their offer. Your response should be the most ballsy counter demand you can get away with as that counters the pull of the low initial offer. If they want to buy your business they won’t be put off, just stay in touch and let the deal work it’s way through.
My seventh tip is, then, to be ballsy with your first price or counter offer.
8. Be Prepared, Then Speedy
Speed of sale is a hugely important factor throughout the selling process. Deals fall through if people take too long over them. Sellers get nervous, circumstances change… So, when you get to the point where you have agreed on the heads of terms, everything needs to be quick, in order, and able to run smoothly.
As an example. When we were going through due diligence, I thought we were a pretty slick organisation. One thing we hadn't done, though, was documenting which clauses had been altered and were non-standard ones in our client contracts. This turned out to happen at a crucial point in the deal, so 700 contracts had to be manually reviewed - something that caused a two-week delay. It's things like this that can threaten a deal, especially if you have several of these issues going on at the same time.
If we had ensured our client contract process had had a step to collect this data and any other data we needed in a simple spreadsheet, the delay and consequent risk to the deal could have easily been avoided.
The eighth tip: The key is to have everything prepared, ideally years in advance, and then sell quickly.
9. Get Independent Advice
As you go through the selling of your business, it's essential to recognise that your commissioned advisors are unavoidably conflicted. Actually, a lot of people around you are conflicted because they want the deal to go ahead as they stand to make money from it. In essence for you if the deal fails you still have a valuable business but for them they effectively get nothing so your interests are not aligned. Therefore, it is important that you have someone independent you can talk to about the terms of the exit.
Corporate finance people don’t offer that kind of independent advice. It’s much better to (whenever possible) reach out to a friend who can advise on whether the deal makes sense and give you some impartial advice. I was lucky to have a friend help me in this regard.
It can be quite stressful to have anyone and everybody pushing you to sign a deal. My ninth tip is to always get independent advice from a non-involved party.
Tips About the Emotional Experience After Selling
Selling a business is so much more than signing a contract. If you're truly invested in what you do, your company can be a large part of your identity. So, here are some tips for how to deal with what happens after a purchase.
10. You Don’t Make Money When You Sell
One interesting thing I discovered when selling my business is that you don’t really make any money when you sell; everyone else does. Let me explain.
I learnt this when I was sitting in a due diligence meeting in London. Twenty people had been flown over from New York (that was the purchaser’s side) to spend two days with my team. All our advisors were there, too, and at a huge cost if I may say so. This is a relatively common scenario; it’s all part of the due diligence to interview the team.
I remember sitting there thinking: The advisors are getting huge commission pay outs, the buyer's team are all getting big bonuses in relation to this deal, and my team are getting their share option pay out. And me? All I'm doing is exchanging my business, which is worth a lot of money whether I sell it or not, for cash. So you're the only one who doesn't make money that day. That's actually the day I decided to pull out.
My tenth (and very important) tip: You don't make money the day you sell, but you do turn a massive corner in your life.
11. Have No Regrets
When the deal is done, it's very common for a lot of founders (including myself) to have regrets. You suffer a loss of purpose and a loss of identity.
This is natural, and it's actually a good sign you had created something and were doing something valuable. Some nostalgia is to be expected, but you should always make sure your reasons for selling are clear and well-thought-through.
One thing you can do to battle the feelings of loss is to write down the pros and cons (remembering the plusses the most) and note your future plans so you can refer back to them. It also helps to talk about your decision to sell your business with your friends and family, so they can later remind you how you felt at the time.
My last tip when selling your company: If you have the right reasons, do it. Celebrate your achievement, and have no regrets.