Want to Sell Your Business? Think Like a Buyer

What’s my risk? That’s what they’re thinking.  

It might be rhetorical, or they might look you in the eye and bellow it before you’ve even finished shaking hands. Either way, “What’s my risk” underpins everything they do.

While you’re redrafting your quarterly projections and justifying your org chart, buyers are carefully assessing how quickly they can get their money back.

Let’s say you’re making £1 million annual profit, and you price your business at £10 million. The buyer knows they can theoretically recoup their investment in ten years, but, of course, they would like it back sooner. So they’re going to peel back the onion. What’s behind the numbers? What’s the story that got you here? What’s stopping you from getting to the next stage?

If you’re going to convince someone to pay a premium, you have to think about how you allay their fears and minimise their risk. Are your costs going up? Is your income going to fall? What happens if you leave? Were you the glue holding it all together?

Maybe you have one major client, and if they don’t renew, you’re toast. Or perhaps you have 30 captains, but 20 of them are approaching retirement age. On paper, you look solid, but who’s driving your ships in three years’ time?

EBITDA is one of the most widely used methods for valuing a business. But here’s a much simpler equation: The more prepared you are = the more money you make. You need to have your story ready and the data to back it up. So start preparing now. Don’t make knee-jerk reactions that take zeros off your sales price.

The best stories get the biggest rewards! 

Put yourself in the buyer’s shoes. You walk into a business; on the surface, it’s thriving. It’s an industry leader, innovative, fun, and the offices are buzzing with energy. Then you sit down in front of the owners; they’re jaded and despondent. Something isn’t adding up.

You ask why they want to sell.

“We’ve just had enough. It’s just not for us.”

“Right…”

Of course, this could be true. It’s possible. But we’re working in percentages here. Who’s going to walk away from a thriving business that makes them influential and wealthy?

At the very least, it warrants an investigation. Is the market changing? Are the customers disappearing? Are the margins collapsing? Is a scandal about to become public?

When the business isn’t working, of course, a founder will want to leave; when the lack of sleep and added stress is no longer worth the time and money they’re pouring in. If a buyer thinks this is what’s happening, your price is ticking down like the seconds on a basketball scoreboard.

You simply must have a compelling reason for why you’re selling, one that makes sense both emotionally and financially. Age, health, or opportunity, these are your options: Perhaps it’s time to put your feet up after a lifetime of hustling, or maybe your aching pains make it difficult to get to the toilet, let alone to work by 8 AM. If it’s not your age or health holding you back, opportunity is the answer.

When we sold City Cruises, I was approaching my 70s. I knew I didn’t have the years to carry on making plans that I wouldn’t be around to follow through. But, by then, I’d built a team that didn’t need me anyway. The truth was we didn’t have the resources to take the company global. We’d reached our capacity in London. We transported four million passengers a year, and we were running out of places to put them.

I didn’t need to sell. In fact, a huge part of me didn’t want to. But I’d gotten myself into a position where the business didn’t need me any longer, so when the timing was right, we’d be ready to exit. And thankfully for us, that timing couldn’t have been better.

Figure out what’s driving the buyers.  

You can’t leave anything to chance. The more you can find out about your buyer’s intentions, the easier a deal will be for both of you. Do they want to enter a new market, take over your patents, or just increase their assets? They could be trying to reduce their tax liability by investing in other businesses, in which case, they may pay over the odds. If you know they’re seeking an aggressive expansion, produce a growth document that shows where the market is heading. Highlight possible future acquisitions in the industry. Show them a clear path for the future.

It’s like any deal; you have to consider what is good for both sides. Whatever happens, always be 100% helpful to new bidders. They can walk away if you’re rude or arrogant, even if you think they won’t. There are plenty of other companies out there.

Stay ready (so you don’t need to get ready).  

It doesn’t matter how attractive you are; the more complicated you make it, the less likely people are to stick around. When a potential buyer comes in, you should be able to hand them detailed records: a company handbook, training manuals, contracts, revenue forecasts, live-stock levels, cash flow, and management accounts. You need to give them confidence that if they took the keys tomorrow, they could steer the ship, with or without you.

Here’s a list of ten things you should consider having ready:

1. A full set of audited accounts going back three years
2. Management accounts going back three years
3. An asset register
4. An organisational chart
5. A copy of every employment contract
6. A salary schedule
7. A list of suppliers
   – With a copy of the contracts you have with them.
8. What services are outsourced
   – Copies of those contracts too
9. Known risks facing the company (Planning, legislation, or taxation)
10. Name of lawyers handling the sale

Speak to your accountant. 

Tell them you’re thinking about selling. Ask them what you need to put together for potential buyers, get them to asses what you currently have and give you some critiques.

Speak to your lawyer 

You don’t want to rush into any business dealings if you can avoid it, but especially one so vital to your future. Tell them what you’re looking to do; they will undoubtedly bring up a dozen things you hadn’t considered. You want the sale process to run as smoothly and efficiently as possible; you have a buyer now, but they won’t be around forever. Good lawyers can help you get the hard work done early, before your buyer has a chance to change their mind. All of this preparation will help you answer almost any question with confidence, and to get your best price, confidence is crucial.

Now, take a week off! 

Throw your phone off Waterloo Pier, set your Out-of-Office, and go and sit on a beach.

“Are you crazy? All hell would break loose. I’m trying to sell my company, not bankrupt myself this close to the finish line.”

If you can’t leave your office for fear of what might (or might not) happen in your absence, you’re probably not ready to sell. If you can remove yourself from the equation, the new owners will have a plug-and-play business that they can take in any direction they want. Think how much more they’ll be willing to pay for that. If you need to be there, you either haven’t trained your people correctly or are too attached to the role; either way, you don’t have the right processes in place.

When I sold City Cruises, I forwarded every email from the buyer to someone else in the team. I didn’t want them to rely on me for anything.

Put yourself in the buyer’s position. What would you want? An owner-free business that you can mould to fit in with the bigger vision, or someone in the boardroom saying, “But we’ve always done it this way.” How will that person make unbiased decisions when you’ve come in and taken over something they’ve poured so much of their soul into? Suddenly, you have divided loyalties; a senior management team caught between ‘The processes that got them here’ and the new way of thinking. As strange as this sounds, you have to make sure you’re NOT an asset as quickly as possible. The business has to survive without you.

If you want to get the best price for your business, you must think like a buyer. The only question you need right now is: Would you buy you?  

If not, keep going until the answer is yes.

Written by Gary Beckwith.
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