We’d been building value in our consultancy with a view to selling it for several years and I was pleasantly surprised at the speed with which we received an offer, and at its size, when we decided the time was right to sell. However this was by no means the only surprise in a sale process during which I learned a lot.
Balancing everyday operations and deal demands
While there will obviously be more work to do during the deal process, the challenge of running the business in parallel with meeting information requests for the deal should not be underestimated. Bear in mind too that if you choose not to share the fact you’re looking to sell widely with staff, you will find yourself requesting information from staff and not being able to explain exactly why you need this data.
And the demands do not fall only on the management team; the finance team’s workload also increases dramatically. If I was going through the process again now, I would hire additional resource for our finance team, because we found that they didn’t have time to keep on top of our debtors like they normally did. This affected our working capital, which is a key figure that buyers scrutinize.
Before we started looking for a buyer, we (the shareholders) decided as a group the criteria we’d use to make a decision on offers we received. By doing it this way, before an offer came in, we were able to make sure that emotions didn’t get in the way of our decision-making. There are many different factors here, so it’s well worth making sure you’re all on the same page; someone might just want to go with the highest bidder, another may want to sell where they see the strongest cultural fit, another to the company that offers the most synergy and potential future growth.
Something I found particularly challenging was not telling people in the business that we were looking to sell, where previously we were very open with information. We chose not to tell staff that we were looking to sell to avoid creating a feeling of uncertainty. Some owners find it hard to relate to how employees think and don’t realize how much staff will worry about their future job security. Many years before, I had a deal fall through after I had told the staff about it. Having sold the vision of being part of a new organization, I now needed to sell the vision of not being part of the acquiring company. In addition, your staff will assume that you will continue to market the business and so they could be sold at any time. This creates unnecessary uncertainty and distracts staff from their day job, putting the performance of the business at risk. In reality, a transaction may not happen for years, as in my case the deal I did was 5 years later. All in all, although it is difficult, the collective wisdom is that you don’t tell your staff until the deal is essentially done.
The earn-out period
Some people find working the earn-out period very difficult, but I didn’t have trouble reporting into someone who had bought the business, although sometimes it was a little frustrating. If you are committing to an earn-out, you need to negotiate decision-making rights. Even though you’ll likely have to jump through a few extra hoops, ensuring ultimate decisions are still made by you will help you hit your targets. Your advisor can guide you in making sure this is worked into your agreement.
If there is going to be any integration between your company and the buyer’s business, then this can be quite a distraction and consume a lot of resource. So this needs to be taken into account when setting targets for the earn-out period – again, your advisor can help with this.
Finally, while you have sold the business, during your earn-out period you still have a key role to play in maintaining a passion and vision for the future of the business – even though you may not be part of it. Inspiring and motivating your team, so that they continue to follow you, is hugely important. Your personal focus may have shifted from long to short term, but you need to stay on message and continue to talk of the future to keep your team engaged.
Selling your consultancy is a challenging and exciting time. While it can be tempting to think about what you’ll do once you’ve signed on the dotted line, it’s important not to lose focus of the day-to-day running of the business and continue to grow during the sale process.
Listen to Marc’s webinar on what it’s like to sell your business here.
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