Jan Fletcher OBE is one of the UK’s leading entrepreneurs. She has successfully built up and run businesses in a wide range of sectors and has tackled numerous mergers, acquisitions, and business sales. She is currently focused on property investment, development and syndication, natural health products, nutraceuticals, and online media.
Over the years, Jan has held a number Chairman and NED roles, particularly helping to steer growth, investment strategies, acquisitions, and governance.
In the second installment of a two-part blog, Jan shares her insights on how entrepreneurs should plan for an exit and offers her tips on finding a buyer, doing the deal, and avoiding costly mistakes.
Finding a Buyer
As I mentioned in Part One, it’s important to wait, if possible, for the right moment to sell. Make sure you are in the right economic cycle and your business is fully prepared.
Most entrepreneurs I know who have exited a business say they left it too late. You have to know when to capitalize; which is difficult to do, especially if you become emotionally attached to the business. You need to know exactly what you want as an owner from the very beginning and stick to that strategy.
Your advisory team will help find a buyer. However, I usually find that buyers come from people you know in the marketplace. You probably already have a good idea who they will be, so bear that in mind as you get your business in shape ahead of the sale.
Most buyers finance the deal with debt and, as a result, are looking for the cash flow to service that debt. You need to be able to demonstrate your business’ cash flow, so keep that in mind during the preparation phase.
Doing the deal
Generally, the deals process comes as a big shock. There is a huge amount of paperwork and it takes up a large amount of your time. For a small business, the deals process can take up to six months. For larger businesses, it can easily take much longer.
The key to success is to be prepared in every aspect. If every aspect of your business is in order, it can cut the time it takes to reach an agreement in half.
The due diligence process is arduous and thorough. Potential buyers will look closely at every aspect of your business. You can’t afford to have any holes in the paperwork as they will instantly use it to chip away at the price.
Inevitably, buyers will attempt to find ways to reduce the price towards the end of the process and, after several months of hard work, that can come as a shock to people. It will happen. So, be prepared and make sure you stick to your goals. Don’t be tempted to give in just to get it over with. However, where legitimate issues have arisen, sometimes you have to take a “view” and be pragmatic.
Picking an Advisory Team
Picking the right team of legal and financial professionals is hugely important. You must agree a fee structure in advance of an appointment so everyone knows where he or she stands. Your team must have experience in sales, mergers, and acquisitions and they must also be likeable, as you will be spending a huge amount of time with them in the months ahead. Do check out your proposed team and the deals they have previously been involved in. Also, take up references and speak to others who have worked with them.
There could be many desperate moments during the process. A team of people who have experience, insights, and also a little bit of humour will be invaluable. A good team will be able to prepare you both professionally and personally for what lies ahead. It’s important that you are able to trust them to keep you on the right track throughout. I have seen advisory teams become a barrier; so, do take the time to get to know what they can offer you and your business.
It’s also worthwhile to look at bringing in a non-executive director (NED) with experience in exits, mergers, and acquisitions well in advance of a disposal. They can provide genuine support and guidance through the process and deliver experienced insights and wisdom.
A good NED will help you prepare for the deal and mentor you through the negotiations. A major benefit is that a NED will not be blinded by fee potential and will offer solid, impartial advice as they will not be profiting.
Avoiding Exit and M&A Mistakes
Selling your business can be a minefield if you don’t know what you are doing. One of the biggest mistakes I see is a business owner that takes their eye off the ball from the day to day running of the business during the deals process.
Inevitably, this will cause the business to decline. If you’re not making the money you have predicted, the price drops. Everything has to be performing to its full potential throughout negotiations. Otherwise, someone will low-ball you at the end.
If you’ve followed my earlier advice, you’ll have a solid management team in place to look after the business, but you still need to keep a close eye on everything. Unfortunately, that means a lot of hard work. It can only be tackled by being massively organized and super-efficient. You must retain control.
On a final note, do your best to look after yourself and your personal life. Before you start the process, speak to your family and tell them what to expect. If it’s stressful for you, it will have an impact at home. So, prepare them as you will need their support.
You also need to take some time off from the deal. If you can manage a break, you will think more clearly and it will help you to keep things in perspective.
Doing business deals can quickly become all-consuming; so, do your best to step back and recharge.
