The first step in preparing a business for sale is actually deciding that you are going to sell the business!
This might sound obvious, but most owners do not get around to even taking this first step. Consequently, most owners park the issue and don’t do anything about succession planning.
This blog is about what happens to a business when the owner does nothing about their own future.
How Doing Nothing Affects Employees
Employees can be highly loyal – right up until the moment that they aren’t! They want to stay with the business, but they could leave at any time. You need to work at keeping them.
They are also highly sensitive. They will notice the signs that the owner is thinking of moving on. Whether it is age, reducing their role in the business, handing over authority, or an increase in outside activities, these will all be noticed and employees will start to wonder.
If you fail to take the next step and start properly planning your succession, employees will grow worried about their own future; disquiet, and even resignations, can ensue.
How Doing Nothing Affects Clients
Clients are like cats. You don’t own them, and you need to work hard to keep them.
Business owners are often highly influential both within the business and also with clients. This is particularly true of founders where clients joined because of their vision.
For businesses where client loyalty is essential, a founder who is seen by clients to be dithering about their future can create unhappiness.
As an example, take financial planning. I sold my financial planning company, Ovation Finance Ltd to an EOT back in March 2018. Post-sale, the employees adopted the slogan ‘Ovation – the sign above the door will never change’.
Clients want consistency and to know that their affairs will be looked after. Not just now, but in the future, past their own demise.
For this reason, they will be particularly keen to know that the business will continue beyond the founder. A founder who is perceived to be nearing an exit (such as showing the signs outlined above) will be creating uncertainty amongst clients.
And if clients and employees become nervous and maybe even leave, then this is clearly going to affect the valuation and saleability of the business.
How Doing Nothing Affects The Eventual Sale
For owners who fail to prepare options at the point of sale can become extremely limited:
- The EOT route becomes much riskier if the business has not been prepared in advance.
- A management buyout becomes less likely if the management team has not been able to prepare for financially, or have taken over the relevant responsibilities (such as how to replace the owner on the board, or in many cases even forming the board in the first place).
This often leaves the only option to be a trade sale. This can be an extremely unattractive option if looking after employees, clients and seeing the business continue are a priority.
If this sale is forced (perhaps due to ill health), then options are reduced even further.
It is important in any negotiation to have the ability to say no. If the trade sale is the only option, you are not likely to get the best deal as if you had other routes available to you.
Unlike the old song, when you say nothing at all you are likely to create concern and uncertainty and reduce your own options.
Our advice – start thinking about how you would like your entrepreneurial story to end. Talk to us. We have a lot of experience in helping owners work out what their first step will be.