We’ve heard selling a company labelled as everything from an inevitable part of the business world, to the hardest decision an owner will ever make.
As creators of a step-by-step platform making it as straightforward as possible for company owners to sell, we know the truth to be somewhere in the middle.
A company represents hours of your time but, despite your role in growing it, there are sometimes compelling reasons to move on. In this guide we advise on deciding whether it’s time to exit.
1. Weigh up your reasons for wanting to sell
Gut feelings can be good indicators of what action you should take, but selling a company is too important to be left to a snap decision. Ensure any choice you make has been thought through.
If you’re feeling stressed and jumping ship seems like an appealing prospect, consider carefully whether this will be a decision you end up regretting, and whether the issues can be solved another way.
With this step, writing down a good old fashioned list of pros and cons can be a good tool to decide whether it is the right time to enter the selling process.
2. Ask yourself whether your expectations are being met
Often with growth, the priorities within change: early on sales and promotion are important but as customers sign on and processes are established, focus shifts to other areas. If your skillset isn’t as relevant as it was before and you feel the need to grow personally, that can be a prompt to leave.
Some questions offering insight into whether it might be time to move on from a personal perspective:
• Is the experience of running a company what you thought it would be?
• Does it still offer you the rewards and opportunities for growth you expected?
• Are promises made by partners etc being met?
• Is the workload as manageable and fulfilling as what was expected?
Remember that selling up doesn’t have to be prompted by negative reasons: receiving a better offer elsewhere or deciding it’s time for a new challenge are valid prompts to consider moving on.
3. Evaluate whether the company can function effectively without you
While moving on doesn’t mean betrayal, it is important to ask yourself whether you’ll be leaving anybody in the lurch and, if this is unavoidable, what steps you can take to minimise their difficulties (or reward their extra work). Are your staff well trained enough and your company’ practices established enough that a transition is possible, for example?
Also note that with ensuring a fair deal for your employees, there are legal requirements here as well as moral ones: Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) is legislation governing obligations owed to employees and protecting their rights when a company sale takes place.
4. Decide whether it is it a good time to sell in market terms
This is an important question to ask to ensure you don’t sell for a price that doesn’t represent the work you’ve put in. Luckily, the answer in 2016 is shaping up to be a hearty ‘yes’. Here’s why.
• Markets are regaining confidence and interest rates are low, meaning finance for buying companyes is more accessible
• The appeal of owning a company is increasing as awareness of (and attraction to) small companyes increases
When asking this question don’t be tricked by sunk costs: even if a less lucrative offer is on the table that appeals more to your interests and eventual trajectory, don’t resist taking it just because it doesn’t return you to your financial position before starting the company.
5. Look at company indicators to see if it is an appealing purchase
As a seller, looking at internal factors as discussed above is important, but potential buyers will use the same level of scrutiny to see whether your company is in a fit state to buy. Questions you should be prepared to answer:
• How is the state of your industry? Is yours a product or service that is in demand?
• If they buy the company, are there opportunities presented by growth?
• Is there a healthy bottom line: you’ll be hard pressed to sell a sinking ship
Remember that buyers want demonstrable proof that you have built a sustainable company with a good reputation, and ultimately that it presents an opportunity for them to make money on their purchase.
Having a thorough list of facts and figures, this will help you negotiate a deal more effectively, as well as certain documents both financial (balance sheet, Profit & Loss statement, turnover documentation, net and adjusted profit figures, value of assets) and non-financial (operations manuals, HR policies, client and supplier contracts).