This guest blog was written by Chris Budd, who wrote the original Financial Wellbeing Book as well as The Four Cornerstones of Financial Wellbeing. He founded the Institute for Financial Wellbeing and has written more than 100 episodes of the Financial Wellbeing Podcast.
Ask small business owners when they plan to sell their business, and you invariably get the same answer: in five years.
Go back a year later, ask the question again, and the answer has typically not changed: in five years.
Five years is a time scale which is close enough to sound real, but far enough away to not have to do anything about it.
Unfortunately, this often means that when the time does come to sell the business, neither the business nor the owner themselves are ready for the sale. As a result, not only does the business not achieve the value they hoped for, but the owner very often struggles personally with the transition.
There are many business advisers out there who can help prepare a business for sale. But what about preparing yourself?
Here are a few tips on how to prepare yourself to sell your business.
How much do you need to sell the business for?
I’ve asked this question of many business owners over the years, and the answer typically has two characteristics.
Firstly, it will be a figure such as £1 million. Now, I have a principle in life to never trust a round figure. Somebody who says their business is worth an amount like £1 million probably has not really looked into what the business is worth; they are guessing, often based on what they heard other businesses have been sold for.
Secondly, the question doesn’t ask the value of the business; the question asks what you need to sell it for.
This is where financial planning comes in. Most people think they have an idea of what they need for life after work. However, without a financial plan, this can only be a guess. When selling a business, this can be crucial.
If you think you need £1 million, but the business is only worth £500,000, then you might not be able to sell the business yet. If the business is worth £2 million, however, then you have options.
Key to this financial plan is understanding what life will look like after the business is sold. This is very often where things get especially difficult.
Who are you and who will you be?
I once worked with a shareholder, founder and chair of a business, Davey Consulting Ltd (name changed). He was aged in his late 60s. He had no particular role in the business, but liked to pop into meetings and offer his opinion. Privately, the employees and executives shared with me that this was a real problem, but nobody wanted to tell him.
I asked: Why didn’t he just retire?
One answer was especially enlightening: “Because today he’s Bob Davey of Davey Consulting Limited. When he retires, he’ll just be Bob Davey.”
Business owners, and founders in particular, often feel defined by their business. They can find it extremely difficult to envisage what life might look like after the business is sold. Consequently, they do not take the first step in preparing themselves for the sale.
One objective of every business owner should be to make themselves the least important person in their business. After all, if you’re the most important person, then that business will be very hard to sell. Understanding what life looks like post-sale and finding a new role in life is a key part of this process.
What will you lose, and what will you gain?
Someone coming to the end of their career is likely to experience three characteristics in their working life:
- They are likely to be competent. They’ve done the job for a long time; they know their stuff.
- They’re part of a team. They have interactions with others.
- They have a purpose. They can see how their work affects others.
Once the business is sold, these three things will go with the business. That financial plan, therefore, needs to start with consideration of how these aspects of their life will be replaced.
Unable to see over the fence
This process can take many years. An owner has often spent so much time building the business, investing so much of themselves, that seeing beyond the business to a different life can be very difficult.
Two tips, therefore, are to start early (about five years should do it!), and to get help. Preparing that financial plan should start with what life might look like post-sale, then work out how much is needed to achieve that life.
Once this financial plan has been formed, and the owner feels ready for the sale of their business, the preparation of the business for sale can really begin.
Please note:
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.