TOUGH DECISIONS… NOT REALLY!
Every day I speak to people about the sale of their businesses, and I am always fascinated by the different stories behind their entrepreneurial journeys. How they used their skill, their energy and their ingenuity to build amazing businesses that deliver value for them and their families over many years. What is equally amazing, although often disturbing, is how they falter around the question of exiting. For those of us on the outside, there are times when it seems so obvious that considering an exit would be a wise move, but to them it never seems to be the right time. We see a wide variety of drivers behind exit. These include factors that move owners towards their exit decision, as well as drivers that convince them to delay the decision, often to the detriment of their business and their wealth.
Many owners seem to convince themselves that they can decide to sell their business today, and somehow pull it off by tomorrow. The reality is that selling a business not only requires at least three to four months of preparation, but also involves a thorough process of contacting prospective acquirers, holding meetings and driving for offers. This process, along with preparation, due diligence, legal processes and regulatory requirements can easily take 12 months. Only after that does the handover process begin and that, in turn, can take another year or two. So when thinking about timing, be aware that your actual exit date may only occur up to three years down the line– and that is before you have even made a decision to start!
Another driver behind exit strategies is value. Unfortunately, determining the value of your business is more difficult than your average adviser would lead you to believe. There are many valuation methodologies out there, but the truth is that only an acquirer can truly value your business – in their hands. They alone will know how they plan on deriving maximum benefit from the business. It is a bit like running a marathon: you only know you are fit enough when you actually tryto run the distance. You will not really know the value of your business without taking it to market, and doing so properly.
Of course, in my view, the biggest driver for making the decision about exiting your business should be risk and wealth management. Too often, I see people delaying their exit decision because they think things will get better, when the truth is that the writing is already on the wall: the reality is that their business needs investment for growth and they are simply ignoring the signs. It is extremely difficult to attract premium value for a business that is flat lining or declining. Be honest with yourself about what you need, your wealth and the risks facing you and your business.
Finally, an important point to remember is that the decision to embark on an exit journey is not merely a decision to sell your business. It is a decision to be prepared, to build knowledge and to access experience. It is a decision to learn what the market likes or does not like about your business or your business sector, so that you can make changes before re-engaging the market in the future. And maybe, just maybe, the outcome will be a fantastic deal that meets all your needs!
Rick Grantham, Executive, Deal Leaders Africa