Why you need a gameplan when selling your business

Manchester United are one of the most valuable football teams in the world and they are currently on the market with a price tag of between £4bn and £6bn. For business owners looking to sell their business, there are some interesting lessons to be learnt from this transaction.

As an accountant, my love of Mergers and Acquisition (M&A) activity stems from the introduction of the professional era of rugby in South Africa where I was fortunate enough to be involved in corporate transactions that saw many of the big-name clubs introduce new corporate structures and ownership.

Over the years my interests and experiences collided and I started to see that closing a sale and scoring big on the sports field have a lot in common.

The most important overlap is having a game plan. Did you know that about half of the sales deals fall apart during the due diligence process? That’s because too many companies have to catch up on ‘overdue’ diligence instead of being ready in the sales process.

To avoid that from happening I believe business owners can learn some key lessons from sports teams in making sure they have a game plan to sell their business successfully:

 

The off-season is crucial for preparation to avoid injury

One of the elements that many business owners fail to appreciate is the time that it will take to sell a business and therefore very few are properly prepared for the sale. This results in slow turnaround times when a sale is imminent or a business owner being forced to sell at a lower valuation than they should.

A business that is ready for sale can take 6 to 12 months to sell – the key here is that very few businesses are ready for sale when the entrepreneur decides to sell. In many cases it could take between 2-5 years to get the business ready for sale and this means keeping the day to day operations running smoothly while continuing to plan and edge toward the desired exit.

Using the off-season to prepare your business for sale, even if you are not planning to sell yet, will give you an edge to leverage M&A opportunities more quickly when they present.

 

A good coach makes a huge difference:

Over the course of my career, I have met some phenomenal entrepreneurs who have built businesses into valuable assets that are the cornerstones of their wealth. I have no illusions that business owners know how to make a profit – just like I have no illusions that star players have the talent to shine on the field. Where they often fall short is that they know their game – but when it comes to scoring or winning deals, they need some ‘coaching’.

That’s where a good advisor comes in. Often, I see business leaders waste time when a deal is warm to get back to potential buyers with basic information that they request. Too often business owners don’t even have access to the basic information and this wastes time putting something together at short notice – still taking too long to respond and when they do eventually respond, providing information of sub-standard value and quality all having the potential to hurt the sale.

The process of getting your business ready for sale can be complicated and time-consuming, which is why it’s important to have the right corporate finance advisor and Part-time CFO to help you with this process. Appointing the right specialists to help you identify areas of risk, where your business needs improvement, developing a plan to address those areas, and working with you to implement those changes.

 

You need to spend money to make money – that’s the rules of the game

Your first instinct is probably to throw me under the bus here – because this guy just wants to make a quick buck. Not really. Did you know that facilitating a sale requires on average about 2 000 hours to set up and see the transaction through? With that being said, the one thing that makes your business valuable is to find ways to improve your future cashflows.

As I’m sure you can see, all of these activities take time. If you had to remove focus from the business for that amount of time – and utilise key players in the business to help you, you are setting yourself up for failure.

You should be prepared to spend anything in the region of 4-10% on professional fees to sell your business – depending on the size and complexity of your business – which is really not a lot if you consider that a good consultant will make sure to negotiate a deal that will cover his or her costs.

 

On your marks, get set, go!

Ensuring you always have an updated company profile, basic information memorandum of the company that includes a recent valuation of the company and updated financials and tax clearance documentation are key to be able to respond to unsolicited approaches.

Ask any South African, the most important part of the game is the pre-drinks or ‘braai’. Successfully selling your business, after you’ve done all the groundwork, boils down to one final thing – the connection between the buyer and the seller. Unfortunately, there are no online dating sites for M&As yet, but we are there for you. Our technical skills, knowledge of methods to sell the business, systems for managing the process to sell and people to facilitate outreach processes will help you find the best match and score big. Are you ready to get in the game?

Andrew Meerburg is the Head of Corporate Finance at The CFO Centre.  Andrew is passionate about helping businesses grow using Corporate Finance solutions.  His focus is on the buy and sell side advisory services, exit planning, finance raising, valuations, BEE ownership structuring and financial modelling. Hylton Surat is Senior Regional Director in Gauteng.