Advice – 3 Questions to ask yourself before you sell your business
September 14, 2016 - 4 minutes read
Posted by Claire Parker
I have had quite a few meetings recently with people looking to sell their business. It is the dream isn’t it – sell your business for millions and gain financial freedom overnight. Having been through this with quite a few clients over the years I thought it might be quite valuable to actually raise some questions that a business owner needs to think about when going through the process:
1) Is it what you really want?
A lot of business wisdom that I have come across particularly in digital sectors talks about scaling your business for exit. It is such a fad term at the moment. It is almost a given that you need to sell your business at some point.
What people don’t see is the blood, sweat and tears that goes into growing businesses behind the scenes. They don’t see the low times where you question everything and the days you just want to walk away. This is a natural thing that every entrepreneur goes through but they also experience the highs like hitting turnover or profit targets or seeing employees that you have trained flourish. All of this actually builds up an emotional connection between the business owner and the business.
So when it actually comes to selling your business, it is almost like a breakup. It is an extremely emotional and physically draining time and it might also include making tough choices that you don’t feel comfortable making. Money is not the drive for everyone and when you make this decision you have to be really honest about what you want from the sale. Is it really what you want?
2) What does life look like after the sale?
I love this one and the answer is easy. Unless you are a serial entrepreneur and it comes naturally, walking away from the business you built is very tough. I have lost count of the number of conversations I have had over this. You might only know building this company for the past 10-15 years. Every day you turned up, most of your time was absorbed in taking the business forward therefore this leaves a big gap in your life, possibly a good or bad thing.
So, if you have decided that you do want to sell your business then you need to start making sense of what life looks like after the event. Everyone goes on that sabbatical type holiday, maybe buys a new house and maybe a car, but what does your new working week look like?
Some entrepreneurs find solace in giving back, some enjoy taking Non Exec roles and helping others and some end up buying the company back in a few years! It is really important that you have a plan for the way your week will look afterwards as business owner and “nothing to do” isn’t usually a productive mix.
Most people also think that selling your business will automatically improve your work/life balance. My view is that if you haven’t figured how to do this before the sale, I am not convinced that you will figure it out after, regardless of the more time argument.
3) Do you know your number?
There is a famous book by The Number by Lee Eisenberg that talks about understanding what your number is from a financial planning perspective. I didn’t really rate the book but I really like this exercise because it keeps you focused on a prize and also helps you visualise how you are going to allocate your “number” going forwards.
The biggest mistake I see here is a lack of planning. I often speak to entrepreneurs “after” the business sale who don’t quite know how to allocate their sale proceeds to meet their lifestyle objectives. Many of them have to find a new income in some way when a little more planning when they were in their own business environment would have probably solved this problem.
Here is a big tip from me because I usually deal with the numbers. Capital is very difficult to get a return on in the current environment. The financial wisdom is that you can generally take around “4%” from your investments/assets without eroding the capital. For an entrepreneur in their 30s and 40s, I would suggest that this number could run out pretty quickly without this planning.
I am going to be doing a few blogs on this topic because it interests me and I don’t think enough attention is actually paid to the people behind the numbers. We glorify the “big sale” but I often wonder is that actually ego or a solid financial plan. Based on the my experience it is often the former that often clouds the judgement. What do you think?