Time to let go: preparing to sell your business

An exit might well be the right thing to do, but letting go can also be very hard to do. Preparation is [almost] everything.

A recent survey of entrepreneurs reported that 24 per cent are currently thinking about exit, yet only half that number are actively putting in plans for their succession. This struck a chord. In my experience, business founders are notoriously reluctant to relax their grip on the reins. It’s as true of entrepreneurs intending to pass the business to the next generation as it is of those planning to sell to a third party.

If anything, that 24 per cent is to my mind an under-estimate. When I was running the Business Growth Programme for founders at Cranfield, most participants said that exit at some point was on the agenda. The reason they were on the programme was to understand how to create a business that could ultimately run without them, making the prospect of exit at an acceptable price more realistic. As one highly successful founder reported to me afterwards: “The first thing I did was to make myself redundant, by employing people better than I am. My life instantly became less stressful!”

Exiting a business is a big step and a decision not be taken lightly. You can’t do it on your own. It is both a commercial and a personal decision, because founders and their businesses are almost inextricably connected. Your business looks the way it does because of you, and in many cases the founder is actually the biggest brake on growth. Building the value that makes the business independent of the owner is the prerequisite to creating the option to transfer ownership, and thus turn assets on paper into cash in the bank. But it requires change, often changes in the way the business is led and managed, and that is hard.

At some point the lightbulb switches on. People acknowledge the need to change and that means enlisting the help of others. Very few people passing through the Business Growth Programme sought to exit their businesses right away. It takes time, after all, to create a more valuable enterprise that can run independently of you. Indeed some participants had already been approached with offers to buy, and concluded that their businesses were potentially much more valuable – if they could learn to unlock that value for themselves. I would estimate at least half of the participants have sold their firms within ten years of attending, and have gone on to the next chapter of their lives. In my recent book, Scale-up and Build Your Business*, I describe some of those journeys to exit and what has helped or hindered the founders along the way. I would pull out three key lessons:

– Identifying and settling on the magic number is vital from the outset.

Knowing where you are going is at least as important as knowing where you are coming from.

Being rich is no recompense for feeling irrelevant.

Get these three things right, and you will minimise that notorious sense of disenchantment known as Seller’s Remorse. And the best way of getting these things right is by having the best-trusted advisors at your side.

The magic number

The magic number is a product of two things: first, the best price for your business if presented in the most attractive way to the right potential buyers. This is the primary job of the commercial advisors who take the business to market, and an experienced advisor will rapidly identify what the ballpark price is. The second element, however, in determining the magic number is what you and your family actually need, to secure your future. That is a task requiring expert help from a trusted personal banking advisor, experienced in navigating the tricky waters of wealth management. As my friend Rod Leefe put it, when he sold his recruitment business Witan Jardine he exchanged the problems of managing his business for the problems of managing his money.

The best such advisor has a deep understanding of you, your family and your future ambitions. For Lara Morgan, founder of cosmetics firm Pacific Direct, cashing out meant creating three assets: two kinds of cash and one in the form of a small residual shareholding. The latter gave her an upside in the future value of the firm under new ownership. One part of the proceeds of selling was what she describes as “safe money”, that would ensure indefinite financial independence. The second cash element was “play money”, to be used for her future venture ideas, and there are many. Clearly, very different wealth management strategies were required for each pot.

Lara Morgan, founder of Pacific Direct and scentred.com

Finding the magic number is like fashioning a two-sided coin. On one side is the value someone will pay for the business. On the other, the money required to secure your future life. When the numbers on both sides align, you have that magic number, and it can take a while before it comes into focus. Unfortunately, in my experience founders often give too little attention to the personal side of the coin, and that is where there is no substitute for sound financial advice and planning.

Nick Gornall, Head of Entrepreneurs at Weatherbys Private Bank, adds: “I observe and understand that business owners are reluctant to discuss their post-sale wealth until they have completed, for fear of jinxing the deal.

In truth, like any good planning exercise using cashflow techniques to forecast future expenditure and intended investment can be massively impactful, not only giving peace of mind that you have the right “magic number” but more so by strengthening the negotiation of the final exit price to get the deal across the line. In that sense we feel we can really add value at this critical time.”

Nick Gornall, Head of Entrepreneurs, Weatherbys Private Bank

Knowing where you are going

Increasing numbers of today’s founders will be selling their first venture while in their thirties or forties. They have years of active life ahead of them. What next? In my book I outline four types of growth journeys to exit undertaken by entrepreneurs, and the cases that illustrate them feature people who are nearly all in middle-age at the time of sale. The happiest are undeniably those who had a clear purpose in mind when they exited. Our recruiter Rod Leefe, for example, spent a year perfecting his hobby of sports photography before choosing to invest in and mentor online employment-related businesses.

There are as many second acts as there are founders: some want to be angel investors, others will pursue a long-held personal passion – opening a boutique hotel is a common one – and others, like Lara Morgan, are serial entrepreneurs. Nick Jenkins, founder of Moonpig, now divides his time between backing promising ventures and philanthropy. The path taken truly doesn’t matter: but there really is a limit to how many rounds of golf per week you can play when your social network is still in the office.

Nick Jenkins, founder of moonpig.com

Being rich is really no recompense for feeling irrelevant

“You don’t want to be the guy at networking events telling people “I used to be..” says one of the contributors to my book, Jamie Waller. While still in his mid-thirties, in 2016 he sold his first venture for a sum that would have allowed him to retire comfortably. Not a bit of it. He has gone on to lead a packed life as a serial investor, business mentor, philanthropist and ambassador for the King’s [formerly Prince’s] Trust. As a full-time business founder and leader, Jamie had one central purpose. Now he has multiple reasons to get out of bed in the morning.

In conclusion

Part of the secret to building a great business lies in assembling a great team to run it for you. In my experience the same holds true of living a happy and fulfilled life after exit. Surround yourself with the right expert advisory team, set your goals and the odds are you’ll never experience Seller’s Remorse.

Nick Gornall, Associate Director at Weatherbys Private Bank, and our guest author of this article, Visiting Fellow at Cranfield School of Management, David Molian, have worked with successful entrepreneurs for over two decades.

Speak to us today

If this article has struck a chord and exiting your business is high on your agenda, and you would like to discuss it further, please contact Nick Gornall on +44 (0) 7436 239639 or ngornall@weatherbys.bank, or Henry Wilson on +44 (0) 7501 384877 or hwilson@weatherbys.bank.

Alternatively, click on the button below and we will be in touch, or visit our dedicated business sale page.

Important information

The information contained in this article does not constitute financial advice and you should seek professional advice.

*Scale-up and Build Your Business: How to Recognise and Overcome the Critical Challenges of Business Growth and Exit by David Molian is published by Routledge.