Love Your Business TV – 21st April – Exiting Your Business
This Week’s Show
In this show, we look at Exiting Your Business – What are your options? How Much? Who would be your most valuable purchaser?
Transcript From Live Show
Hello and welcome to Love Your Business TV. I am Adrian Peck and I am very, very pleased that you are here with me today. This is my ninth week into doing these podcasts with you the nation, the nation of business owners and entrepreneurs. My passion is to help you either fall in love with your business or fall back in love with business. I am Adrian Peck. I am the founder of Better Never Stops. We deliver business advice and coaching programs to entrepreneurs and business owners who run or want to run £1 million plus businesses. I am also the author of this wonderful book, which is How To Fall Back In Love With Your Business: The Entrepreneur’s Guide To Rediscovering Your Mojo And Enjoying Every Day By Living Your Dream.
Like I say, I have been doing this now for about nine weeks. Obviously it was pre-lockdown and pre all this disaster happening, but I am getting more and more comfortable doing it. I am hoping that I am giving everybody lots of value. You can now catch up with us, we broadcast live every Tuesday afternoon at half past three. We are live on YouTube, on Facebook. Where also you can download the podcast every week on Spotify, Apple and Google, and you can catch up with previous episodes either on YouTube, Facebook, or on our website, which is LoveYourBusiness.TV and that takes you through to our main website as well. So really, really pleased to have you here this week. I, Again, I’m always flattered by the comments and the stuff that you pour back into me, so I really, really thank you for all that and the positive stuff.
So, this week I’m going to carry on with the theme around your personal goals and we’ll catch up on that in a second. If you want to reach out to me, as always, it’s Adrian.Peck@peckuk.com and let’s crack on really.
So we’ve been looking at the Personal Ambition Plan. This is on the back of the feedback I had from lots of business owners that I network with and I talked to, that they were using this time to sit and reflect, those ones that were locked out and their businesses been put on pause. They were saying to me, “Look Adrian, I’ve put my business on pause and I’m using the time to reflect in my business really and particularly look forward about what’s going to happen post-lockdown.”
So, the things I have been sharing with you over the last couple of weeks really is around this Personal Ambition Plan. It’s something that I use with a lot of business owners that I work with. It is normally part of the initial four week strategy that I do with them, which is around really setting that personal business strategy. The content I am going to share with you, again, is the stuff that I do with my business owners. It is also in my book and there is a whole chapter dedicated to this, and if you go onto my website betterneverstops.global, if you go onto the free business tools section, you will see all of the stuff that I’m sharing with you, all the models, the forms, the questionnaires, all that kind of stuff I’m sharing with you. That’s all on there. You can download it all completely free of charge. It is out there for you to use and abuse and hopefully feedback on me and give me positive praise about, I do hope.
Over the last couple of weeks we have been building up. There is a couple of weeks ago I shared with you the formula for success, and really demystifies that myth that genius is born and hopefully I approve credit category that isn’t picky with the help of the, the Hungarian genius, the chess man and hopefully the collapse. So then last week we, the last couple weeks within then the Personal Ambition Plan around your personal ambition questionnaire and then went to work onto the values, income and purpose. So what we have done so far really is kind of style betting in what it is that you want out of. What do you want out of your life, what is you want to have your business and therefore kind of how does that all start come together? You have a personal plan, a personal ambition of what it is you want to achieve and that is so important for you to really understand what that end game is, and it’s all very much built on the basis that the journey is more important than the destination.
I am going to touch on this in a couple weeks time. I have a whole presentation on this just to really kind of push the point home that you have to enjoy what you’re doing and there has to be a purpose to what you are doing. Otherwise, what is the point, in essence, what is the point if you do not enjoy it? So this is what it is all about. What we will move on to this week is actually looking at your exit and exiting your business. Now arguably, that may seem quite a strange question, that moment, given what is going on in the world and probably or actually not, it may be not the first thought that you’ve got in your head about exiting your business, a lot of it’s about survival at the moment, but the exit is really, really important.
There are so many business owners that build a business and when they come to sell it, it all kind of goes horribly wrong and actually find out that they canceled. I am going to share some insight that we will be there in a second about that. So the whole reason about looking at your business from a point of selling it, to me it’s a bit like when you own a home. When you own a home, you don’t leave all the improvements and the maintenance until the day that you come to put on the market to sell it. It is something that you do all the time in your house. You know, you look after it, you redecorate it, you try making improvements because you are doing that on the basis that at the end of the day you want to sell your house. Invariably, you try to not do something to your house that is so personal to you that would stop other people buying it.
So to me it is the same with your business. A well run business is a well run business, and if you have got that mindset or that you have got an eye on the game that is actually about exiting your business and therefore, what you are doing today in your business is actually part of that strategy. It is part of that thought you have got, that I need to build this business so at some point I need to exit it. So it is an ongoing maintenance thing you do and it is an ongoing process that you have is that there’s always an end game to it. If you don not, it has some real ramifications because all of a sudden you have got business that you may need to exit. You may need to exit in a hurry because of health or because of a personal needs you need to do, and you can not exit or it has no value.
So that is why it is important to think about this all the time. And to start with that, that bit. I touched on this in my book and it is a book I read many moons ago actually, and I have re-read it a couple of times since, to be honest. It is a book by Steven Kovey. It is a very, very popular book. It is about the habits of, the seven habits of highly effective people. And one of the bits in his book is about starting and beginning with the end in mind is the way he tones it. And it is the same with this really. What I am suggesting to you is that you should run your business with that end in mind all the time.
So, okay. Why is it so important? Over 80% of businesses for sale do not sell. And that is a fairly scary statistic. 80% of businesses do not sell that go for sale. And these are the four real big reasons that they don not sell as well. One of is lack of preparation and it kind of goes back to that house analogy I gave you that if your business is not in the state to be sold, it is very difficult then to sell it. It has very poor financial results. And of course whoever is going to buy your business is looking for return on investment. So again, it is about having the financials in place. There is an over reliance on the owner and that happens time and time and time again. And it is a bit like the juggler juggling the balls. You can take some of the balls away, but you can not take away the juggler. And you have got to not be that juggling your business.
And the fourth one, and not surprisingly, and I have been on the receiving end this a lot when I have gone out and worked with my business owners to buy businesses, is the unrealistic valuation. People believe that they’ve got a million pound business and therefore it’s worth £2 million. And £1 million turnover business and the way for what is worth £2 million. And actually when you scratch away it all they are barely earning a £100,000 a year out of it. The numbers just do not stack up. So you have got to have that end game in mind about what it is you want out of your business and how you are going to exit it.
So, what I want to share with you now is I am going to take you through, there is about six really, what the options actually are to exit your business. So we would go through each one by one, we are not going to go through in huge detail. I am very mindful of people’s time. If you want to dig in more, there is a whole heap of information in my book, and there is also the guides and stuff that I have shared with you online is all online on the website.
So what are those six options? And there are six key options. A couple that are touch and run, but in the end, really there are six key options. So the first one is liquidation. So actually what you can do, is you can run your business with a mind in fact that you are just going to sell it at the end of it. It is kind of a bit more of a lifestyle type business and you know that you are the main guy and at the end of it you are going to sell it.
So, I was talking a couple of weeks ago to a guy who runs a very particular tax type of currency or a consultancy type business, and whilst he’s got a team of people that help him to support him and help him do some of the nitty gritties on a day to day basis, the reality is, is that expertise is all about him. So it has been very, very difficult for him to sell that business outside of him because he is the expertise. It is kind of almost like, you know Chris Evans trying to sell Chris Evans’ business. Chris Evans is Chris Evans. So you get the point. It’s all about the business owner.
Now that is not a wrong strategy. If that is what your business is about, then that is not a bad strategy. The bit you have got to be able to do out of it, is that when you make your money to reinvest into other stuff. So actually what you do every single year is you purposely run the business very lean, very slick, and you use it as a vehicle to then January, you cash to go invest in other stuff. That other stuff could be pensions, et cetera, could be property, could even be other businesses. But that is kind of how you do it. And for a lot of solo entrepreneurs and single business owners, invariably that is the only option is to liquidate the business at the end. You sell off all the assets and the rest of it is got very little added value to it. So, you kind of strip it all of its money. I say it is a very relevant reason. It is not bad strategy at all, not a bad use of strategy to have.
So, the next one is that about family and where you are going to look to pass your business onto a family. I have worked with a couple of business owners now and one of them is definitely there to pass on to their son who we are helping and grooming in that process to eventually take the business over. Obviously you need to groom that successor and there is an ability then to stay on in a capacity, and at the end of it as well, as an advisor.
There is a few sort of kind of cons with it in terms of you have to make sure there is a willing and interested in still family member to take it on. They also can cause some family tension when there are other siblings and that person is taking over. I have seen that a couple of times and always difficult with family businesses. Sometimes it can be slow to develop that person as well. It’s not necessarily a quick exit plan, but it is something if you have got a five or 10 year view you are taking of it you can kind of do that. Also, the business owner, the current business owner, you have to be very mindful of the fact. It might be difficult. You have to ask yourself that really deep question is, can you let go? Are you even now to let go of your baby and not interfere? Because That is kind of the worst thing you can do if you are going to hand over.
So, that is the family one, let us move on then to selling to them to your employees. Often known as a kind of management buy out, but you can do what is called an employee share ownership plan as well. Where the shares of the company are actually divided up to employees and employees become shareholders. I think it is, it comes from the second is one of the big brands is is this way as well have the name just going out of my head, but that they have that. There is a couple of big brands out there. They have got this kind of insurance that the employee shareholder type options. I worked with a business a few years ago, a big engineering company. The owner had died, and in his will he actually wanted the business to be passed over, in a two year period over to the employee. So, it can be done.
Again, it’s an easy transaction business cause it has very little disruption to it because it’s literally going to step out and have people up and then literally the people that are in it and then carry on running it. Again, you can be kept on with in an advisory capacity and there is, you can be very loyal to people that are working with, I know that a lot of times I work with business owners. One of the things that’s always in their head when they’ve grown this business and that put people there is they really care about a bit of the people that they brought. So very rightfully it. When it comes up for a sale, they’re very nervous about what’s going to happen to the employees and they want their employees after the Lord who they have shown to them. So this way it is is absolutely kind of cement that and you can then say pass the, the ownership of the business over to employees.
However, it doesn’t mean that the whoever is there and there’s a management team that is willing, interesting and skilled enough to run the business, the if the, they have to be able to raise the funds. So the whole proposition needs to be financially viable. And again it can be such slow at times. We’ve got the handovers. That handover may need to happen over a few years. It may not be something that we’ve done very, very quickly.
Okay, so that is that one. And we move on to number four, which is the option just to sell up the open market. So, then you know there are various agencies out there, mergers, acquisitions type organizations or consultancy type companies that can hopefully advertise your business and go sell it. You have got me, bear in mind that only 20% of those list of business actually do sell. But if your business is profitable and well run and it will be attractive and it will sell quite quickly. So there is no reason that it is not a bad option. The difficult ones are a low margin, excuse me, low margin and high assets.
So, I work with a lot of engineering type businesses, engineering manufacturers, and they have a lot of plant equipment that is quite expensive. And therefore, in order to buy the business, there is a price for that on the balance sheet. For instance, if there’s a million pounds worth of equipment as valued that sits in the balance sheet, then you have got the kind of working capital that needs to be in the business and then you’ve got your, your Goodwill that you will be paying for.
So, let us say we are up to £2 million now that somebody has got to buy this business. Clearly, if that business is only making a £100,000 a year, net profit, that is a really bad ratio in terms of I spent £2 billion to get a £100,000 back. So, the finances have really got to stack up on it. And it is really difficult with some engineering businesses that work on very low margins to actually then do the exit. But it can be quite quick and it can be quite a straight sailor as well. But it is that kind of mindful of that it has gotten stacked up.
This is number five or selling this to a competitor. This is probably the most likely, is probably the most valuable option for you. If you just think through the logic of it, just take the scenario, whose most, if you’ve got a car that is two years old, you got a two year old Audi A-4 for instance, the person that is most likely to buy it is one with a four or five year old Audi A-4. You know that is the most likely person. The most likely person already owns an Audi. So, very similar to selling your business to a competitor, the person that is going to value it most is somebody that is already running that type of business. Or, is somebody that can readily bolt-on your business into their business and therefore extend what they have.
Like I say, most likely where you are going to get most value is from one of your competitors. They can bolt it into their existing business. They can remove you from the market. So, therefore that puts them in a more competitive edge straight away as well. They are going to have some economies of scale by taking you out of the market because they will not necessarily have to put all the head office infrastructure in. They can just kind of absorb that into their business potentially. So it is a great way, and probably say the most valuable way, of getting a good return on your business.
One of the things you will be very mindful of is if you are very loyal to your employees and the people that have worked for you and help you build your business, you have got to really make sure the motives of who is going to buy your business. And I was involved in something last year and it was very clear that when we sat down and talked to the people that made an offer for the business, that they will literally going to strip that business and they were going to basically fuck and fire all the employees in reality. Straight away, the business owner I am working with that put them off completely from doing it because that loyalty to their employees and there is no way they were going to do it.
So in terms of a few cons along it, the one thing you are going to do is you can be very vulnerable in the process because you, yes, you have nondisclosure agreement and you pull that stuff in place, but to be honest they need bloody nothing really. If you are going to open your heart and soul to a prospective buyer and in particular to one of your competitors, they are going to see your business, warts and all.
And you know, it’s a real kind of drop your pants time and look at what got and you know, they can know exactly that. So you’ve got to be very clear about this. You have got to be very clear in your process of choosing who it is you are going to invite to buy your business because of that vulnerability that you are going to have. And if you choose not to sell your business at the end of it, clearly you have shown them, you have shown them everything. So that process can fall down at aim and as well.
So yeah, so that is the option of selling to your competitor. The last option I have then is for, it is a managed, so it is about managing, turning your business into a managed business so you are going to step out of it, and you are going to put a management team or have the extended management team to carry on running it for you. Now in reality, this is only a staged exit. There still has to be a golden exit from it, but it is something certainly that you can do and keep the business going for a long time. So for incidence, I have worked with a business owner before and he was absolutely adamant, when I pulled this, we helped him pull the strategy together. He was absolutely adamant that he was going to take this business to the grave. He was actually going to do it and that is what he wanted to do.
I helped him put a strategy in place that at some point he can put that management team in place, which allowed him then to step back from it. He carried on in a chairmanship type role and had some involvement to it. But he kind of let go with it and it was an absolute deliberate strategy we have done. He, had a real massive problem with letting anybody basically you cut off his baby, I don not know, it was just something that he just could not see, did not want anybody else doing. It was his baby. Only he was ever going to look after his baby. So tha was kind of what had to be done. So there is a way of doing gang, you’ve got assume their skills and they’re willing to the managers to to take it over and the business is proper enough to have a management team and still pay you a good income out of it as well. Again, this are some time constraints that may take you to do it as well. And even though you are still going to be involved, you’re still got to let other people get on and manage your business as well for you. So you’ve got to be very mindful of that.
The, the, you have a lot of shoes. I did touch on the kind of, that’s the kind of six main ones there is the option, the option of putting your company up in the stock market. It’s very, very unlikely for the sort of businesses that are from most walks of life and the stock market stuff that tends to be the businesses that I’ve, you know, started off with that view that this is what they’re going to be is that they’re aiming to to float the business from day one. Of course within those, the six that I’ve shown you, there are many kinds of hybrid models in there where there are stepping stones or something that might take you to your end exit. So the net, and they’re not kind of rooted in both, I’ll take you through the sixth. There are kind of say different versions of those you’ve been dragged through as well.
There is also other things you have got to be mindful of that if you do sell it and if there’s any kind of earn out situations in there as well because owners invariably will say, well we will pay you this lump fee and we will pay you that lump here. So, there are various kinds of scenarios around as well, but you need to just have, the whole point of this is that you have an understanding of what that is likely to happen so that you start running your business today with that mindset in place, and therefore, you are not a bit like when you do have your house, you something to put in a grotesque, I do not know, mannequin on top of the roof of the house that there’s no way that somebody else is going to buy. You have got that end game in the mind with at the time, so that is your personal ambition plan.
That is your exit. We have now discussed there’s all your options if you want to go through them. There is a chart that I have done for you and if you go onto better now stops and the three business tools, there is a chart you can download if looking for exit options on the strategy. That is a chart you can download and go through and that is it.
So, next week we are going to move onto your personal vision. That is something I love the death and I am looking forward to sharing with you and it is a great way of visualizing your goals and to keep you highly motivated to achieving those goals as well. So, I am looking forward to sharing that with you, which is a personal version that next week. And say if you want any more, if you want a free copy of my book and just reach out to me, Adrian.email@example.com and I will send you a free copy of my book and as always, stay safe and I look forward to spending some time again with you next week. Keep that feedback coming in. I do appreciate it. And if nothing else, it lifts my spirits. So thank you very much. And remember, better never stops.