Entrepreneurs are deluged with advice on how to start a business. From the direct approach of TV shows such as The Apprentice and Dragons’ Den to social media content on how to take your “side-hustle” more mainstream. Little is said however on the final stage of the process – selling your business – and how to say farewell when it’s time to leave the party.
A client recently described the sudden influx of money after selling their business like waking up to a 747 in your garage – something huge, overwhelming, complicated and exciting that you’ll have to learn how to make it work.
‘Seeing exit as a long-term strategy makes financial as well as psychological sense’
This encapsulates the challenges of selling your business which is why we work with clients from the very first glimmer of a plan to the final successful outcome. We’ve also now set up a specific Business Exit programme offering access to free tools such as videos and podcasts from successful business owners to provide guidance along the way.
After 20 years of research into the experience of entrepreneurs as they exit their businesses, I’m ready to share with you the absolute key lessons I’ve learned.
#1 – Mindset comes first
Sitting around waiting for your life to change is unlikely to get you the results you are looking for, so at Coutts we help our clients to develop what we call an “exit mindset”, where you are actively thinking about the sale of your business and being proactive about the next steps, long before you actually sell.
Thinking like a buyer, rather than a seller, is key to getting this right. It’s by shifting into that mindset that you’ll start thinking about whether it’s better to focus on winning new customers rather than another big order from your biggest one – reducing the concentration risk in your income. Or paying more attention to GDPR, something which you may not consider a major issue in your business, but with global turnover-related fines, will be an area of real concern if a bigger player buys you.
It’s likely you’ll need advice on both the corporate and personal side to do this. We advise starting to talk exit through with the experts at least two years before you want to do anything.
That is because one of the important parts of corporate finance advice is to make changes in the business that make it more valuable to a potential buyer, and you need time for that to play through.
There are also tax-efficient ways to structure your exit when it comes to your personal finances, and some of these need to be put in place at least two years before as well. Seeing exit as a long-term strategy therefore makes financial, as well as psychological, sense.
>See also: Valuing your business for sale
#2 – Skeletons in the closet
Preparing a business for sale can be a daunting task, and you’ll need advisers you can trust. Personal chemistry is key when it comes to appointing them: the process is intense, and clients report that they often spend more time with the advice team than with their families.
Good advisers are worth their weight in gold. They will help you to work out who would want to buy your business, and then focus relentlessly on building value, showing you what you have that a buyer couldn’t build for themselves.
They’ll also help you to do what many of us can’t do for ourselves either: find those skeletons that lurk in the closets. By putting themselves in the shoes of a buyer, and testing every possible weakness, they’ll help you to tackle any potential issues before you start talking about a deal/ This is much better than having to explain them only after they’ve been found.
#3 – Boundaries are vital
Selling a business is stressful. During the process you’re riding two horses at once – running the deal and running the business. When the end is in sight, you’ll find the stress levels ramp up even more, so it’s important to be clear-eyed about what you want from the whole thing before you enter the eye of the storm.
The entrepreneurs we’ve worked with for 20 years say that not doing more of this is one of their biggest regrets, so I’d advise you to sit down now and think about what you really want to achieve from selling your business.
If it’s as much money as possible, be aware that this might come with many strings attached, such as remaining an employee for a long period of time and being given stretching growth targets.
If you want to walk away quickly – be clear on how much that freedom is worth for you.
Finally, think about your legacy. Is it important that the new buyer upholds your reputation for quality, for employment in a certain region or for employee welfare? If so, you’ll need to check you’re really happy with the assurances you are being given.
Everyone has red lines. Write them down today so that when it comes to the crunch, you know what you can give up – and when you need to walk away. It’s very easy to get swept along by the sale process, so keep your priorities front of mind, and be ready for the possibility that the deal won’t go through and you’ll need to start again. That way you won’t be crushed or agree to things you will regret.
#4 – Don’t expect a clean break
Many entrepreneurs imagine that the day they sell their business, they’ll open a bottle of champagne and walk off into the sunset. In reality, the ending is rarely so clean cut. Many entrepreneurs need to stay with the business for a while, which means learning to have a boss again, while even those who leave immediately will still be tied to the company.
In most cases you’ll have to sign legal warranties to assure your buyer that they are really getting what you’ve sold to them. Until these expire, you may not feel like all of the money is yours.
Working with the best possible corporate lawyer will ensure you have as little exposure as possible to future risk.
#5 – Be ready for the phone to stop ringing
Once you do sell your business, life will be very different, and many entrepreneurs find it hard to adjust. Entrepreneurs dub it “stimulation shock” – when you go from 200 emails and 12 hours of phone calls a day – to finding yourself sat on the sofa, with money in the bank, but no-one clamouring for your attention and no management team to direct.
Finding your new role in life, and throwing yourself into it, is key to post-exit happiness. It might be philanthropy, angel investing, board seats, or the next idea. And the best way to think it through, is to talk to people a couple of years further down the track than you. They have figured it out and can share their experience.
#6 – Think about the children
Don’t underestimate the effect sudden wealth will have on your family. Post-exit founders often tell us that they wish they’d considered the impact of a business exit on their children and prepared them accordingly.
The way you live, and how you use your money, will rub off on them, while teaching them the value of money through dividing pocket money into thirds to spend, save and donate, will help to instil good habits.
#7 – Find a place to talk
Once you sell your business, great new opportunities will open up – and also bring new problems. You’ll worry about how to deal with your money, how best to invest it and whether you are making the most of your opportunities.
It’s a different set of challenges to those you faced in day-to-day business, and you won’t have a leadership team to discuss them with either.
Finding a new network is crucial – you’ll need a new place to ask questions and get the answers you need. That’s what we try to provide every day.
Greg Kyle-Langley is head of entrepreneurs proposition at Coutts