Lessons from selling my business

Here’s a comprehensive look at why you might consider selling your business and how to approach the process effectively.

Reasons to sell your business

1. Growth Plateau: Businesses often reach a point where growth stagnates. This can be due to a lack of investment or uncertainty about future strategic directions. At this stage, the business might benefit more from being part of a larger organisation with the resources and expertise to propel it forward. Alternatively, bringing in a new owner who can inject fresh ideas and capital might be the best path forward.
   
2. Retirement: After years of building and nurturing a business, many owners consider retirement as a natural next step. Selling your business allows you to step away gracefully while ensuring you maximise its value. Retirement planning gives you the advantage of time to develop a strategic exit plan, negotiate the best price, and ensure a smooth transition.
   
3. Industry changes: The business landscape is in constant flux due to technological advancements, regulatory shifts, and evolving competitive forces. These changes might necessitate more resources or expertise than you are willing or able to provide. Selling the business can help you avoid the complexities of adapting to new industry dynamics and allow a buyer with deeper pockets to take over.
   
4. Burnout: Running a business can be incredibly demanding, and burnout is a real concern for many owners. After years of managing the highs and lows of business ownership, you might seek a new challenge or simply need a break. Selling the business provides a way to exit while potentially finding someone who can continue the business’s growth.
   
5. Market value: If you observe a surge in demand for your products or services, it might be an opportune moment to sell. High demand can drive up the sale value of your business, making it an attractive prospect for potential buyers.
   
6. Alternative employment. I had the opportunity to be a tenured professor at a top-quartile UK research university – Heriot-Watt. It was simply too good an opportunity to turn down, and I could not maintain ownership of my business and not work in it, the other staff would have felt I was deserting them.

Steps to selling your business

1. Conduct thorough research: Start by understanding the market dynamics, the future outlook of your business, and its scalability. Assess why a buyer would be interested in your business and whether current market conditions are favourable. Sometimes, waiting for a more opportune time can significantly impact the sale’s success.
   
2. Organise your records: Proper due diligence is essential. Ensure your financial records, bookkeeping, and legal matters are meticulously organised. Address potential obstacles, such as securing approvals from shareholders or resolving ongoing legal issues, to avoid hindrances during the sale process.
   
3. Professional valuation: Engage professionals to assess the value of your business. Accurate valuation is crucial for determining a fair sale price and creating a compelling value proposition for potential buyers. Professional advisors can also help highlight your business’s strengths and opportunities. But be realistic about what it is worth – if you want to sell, price accordingly. And prepare to be paid over an extended period, especially if your business has clients that might leave after you sell.
   
4. Understand your audience: Identify potential buyers and understand their purchasing plans. Consider whether they are financing the purchase or using cash, their previous acquisition experience, and their intentions for the business post-sale. Knowing your audience can influence how you structure the sale and negotiate terms.
   
5. Maintain transparency: Communicate openly with your team about the sale. Prepare them for the transition and address any concerns. Transparency helps ensure a smooth handover and can include clauses about retaining the current staff for a specified period. Even better, make sure they share in the proceeds of the sale.
   
6. Prepare documentation: Gather all necessary financial and operational documentation. This includes financial statements detailing assets, liabilities, and income, tax filings from the past five years, and a comprehensive summary of how the business operates. An up-to-date operating manual and information on employee roles are also vital for prospective buyers.
   
7. Insert clauses. What happens if you sell the business and, less than a year later, it is sold on for twice the price? Make sure you insert an anti-embarrassment clause – if it is re-sold within a specific period for substantially more than you sold for, you will benefit in part from the increased price.

In the end, I didn’t sell my business. Instead, I gave it to my staff. My husband was beyond furious, but I knew that my kind of business (an executive search firm), where you are selling little more than a client list and decades of goodwill, would need an ‘earn-out’, where I would sell and then stay in the business for 2 or 3 years to ensure that the clients and the staff remained with the new owner.

I really didn’t want to do that – the opportunity to join Heriot-Watt University, an organisation that I had long admired for the employment track record of its graduates, was too great. So I appointed a managing director, tasked him with leadership, and promised that if he showed that he was a responsible custodian of my legacy, then I would give him and his colleagues my shares in the business. He did a great job, and two years later, I handed the whole business to the team for a notional sum.

Selling a business requires careful planning and execution. By addressing these key areas, you can navigate the process more effectively, achieve a favourable sale, and ensure a smooth transition for all parties involved. And you might even, like me, decide that the price, after all, doesn’t matter.