How to know the time is right to sell your business
One of the questions I am most often asked is, “When is the right time to sell my business?” A better question is, “How will I know it is the right time to sell my business?”. But, even then, there is no single answer.
There are many factors that can lead a firm down the sale route. Examples can include death and incapacity, and for few it has been Covid and challenges that has thrown up. Business owners can also get to a point where the motivation is simply gone.
In all of these scenarios, having a plan already in place is crucial. Business owners who plan ahead have a greater likelihood of achieving their objectives and obtaining a greater price.
So what should that plan look like?
It is one thing to have a plan, but quite another to implement it. Implementation requires commitment and perseverance, as change may need to take place over time rather than being immediate.
For example, if it is decided one way to increase the profitability and therefore the value of the business is to no longer deal with clients who generate less than a specific value, it will take time to either sell these clients to another buyer or to encourage them to find another adviser.
All too often, plans are not reviewed regularly enough to keep up with changes in the business, the aspirations of the owners, directors or partners, or other external factors.
One example of the latter is potential adverse tax changes. Possible changes to capital gains tax mooted some months ago have gone away – at least for the time-being – but there are likely to be tax changes at some point to address the economic effects of Covid, so the impact should at least be considered.
In the current market of more buyers than sellers for well-run and profitable advice firms, owners often receive unsolicited offers.
I therefore encourage my clients to have reached agreement among themselves as to what elements any offer must have in order to be considered. Just because the plan is to sell in, say, five years, why wait if an offer is made that meets its objectives sooner?
For that reason, I also encourage my clients to have assembled, and to maintain, a library of relevant documents so they can be easily accessed and supplied to a would-be buyer to quickly assess the merits of an unsolicited offer.
These include client data, financial information and details of the proposition, as well as high level compliance information.
Roderic Rennison is director of Rennison Consulting