How a sale impacts your stakeholders

shareholders

If you’re thinking of selling your consultancy, there are many stakeholders to consider before embarking on the most important financial decision you’ll probably ever make.

1. Founder shareholders

We’ve had business owners wrongly assume that selling a business is like selling a home. If a sale falls through, your home remains largely unaffected and its value intact. However, that is not the case with a business – you only need to consider the time and effort spent on setting up a deal, along with vital competitive information you might have shared in the process. And, if you’ve never done this before, you lack the experience and knowledge to negotiate the best possible deal for you and your business (especially when earn outs are involved).

When engaging in a sale process, consultancy owners become distracted from the day-to-day job of bringing in new business and growing the firm, which can have a detrimental effect on equity value – another reason to bring in expert support.

Tip: Buyers are not interested in a business whose growth has either flat-lined or is in decline. 

2. Senior shareholders

We consider anyone holding more than 10% shareholding as a senior shareholder. Before deciding to sell, sit down with every senior shareholder, especially those that’d be involved in the process, to, explain how they’d be affected, manage their sales expectations and clarify whether or not they wish to be involved and how in the new business after sale.

Then, set out in detail what your senior shareholders’ involvement in the sale process will be. It is important to manage their time and keep them focused on their day-to-day role of growing the business.

Tip: Remember to keep key personnel that the business depends on locked into the company, at least for the duration of a possible earn out.

3. Small shareholders

For small shareholders, a sale is unlikely to involve a life-changing financial amount. However, just as you would for senior shareholders, manage their time and involvement in the sales process.

Learn to manage a rumour of a sale with small shareholders, especially if the business depends on their expertise and input. For many businesses, most small shareholders will be employees who have acquired equity due to their contribution to the business. You wouldn’t want to lose some of your key assets due to the uncertainty involved in a sale.

Tip: Restrict buyer access to small shareholders until a deal has been secured. Also, to mitigate leaks, restrict the number of people involved in the sale process to just the founders and senior shareholders.

4. Clients and prospects

Clients and prospects benefit from the wider range of service offerings a sale often brings. Remember, buyers approach a consultancy because the firm offers them something they don’t currently have access to. This can be access to new clients and market; a new geography or demographic they are currently unable to reach; or access to complementary services – all of which your clients can take advantage of.

Tip: Restrict buyer access to only a small number of clients until a deal is imminent. You do not want to get clients involved only for the sale to fall through.

5. Rest of staff

Staff may suspect that their place is under threat during the immediate aftermath of a sale, so managing any sale rumours beforehand should be a top priority. The alternative is that you risk losing key personnel to competitors, which will damage morale and take the focus away from day-to-day service delivery.

Tip: Once a deal has been achieved, you can use this opportunity to assess and take action on any poor performers.

6. Suppliers

Inform your key external suppliers and sub-contractors of any deal as soon as possible after completion so that they can get their house in order. Make sure to manage any potential conflict of interest between the buyer and suppliers.

Finally, identify and demonstrate economies of scale associated with the supplier to the buyer.

7. Family and friends

This group of stakeholders are often ignored during the sale process as owners inevitably are focussed elsewhere. We advise owners to always plan for life after sale and get their family on side for when that happens.

8. Buyers and investors

Until a deal is finalized, you need to treat everyone with respect and professionalism. Often in a sale process, you will be speaking with multiple buyers and investors. While there can only be one winner, it is important not to burn any bridges, as they might become a future partner.

Tip: Take the time to get to know your new buyer personally and professionally. The faster you can do that, the smoother the integration between the two companies.

You can listen to the full webinar here.

If you are preparing to sell your consulting firm and would like to discuss your plans, please get in touch.

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