The lessons I learned when selling my consultancy

selling-cropped

Marc Jantzen is the former Chief Executive of performance improvement and training consultancy Blue Sky. We recently held a webinar where he shared the lessons he learned from selling his business to Capita and answered attendees’ questions on what it was like.

  1. How do you know if your business is ready to be sold? Do you sell when there is no growth / when you’ve reached saturation?

While the reasons for selling are always personal, it is unlikely that you’d find a suitable buyer if the business appears to be stagnating. Buyers are purchasing the future potential of a business to grow and generate profits.

So, if your consultancy isn’t growing, it is important to identify the cause and perhaps bring in advisors, like Equiteq, to help your business develop a growth plan that gets you in shape and ready for sale.

Click here to read a post from Paul Collins, Chairman of the Board of Directors at Equiteq, on the right time to sell.

  1. If you don’t have control of operations, how can you be responsible for the earn-out?

Clearly, that is not a position you will want to find yourself in because achieving your earn-out will be very difficult if you have not retained sufficient managerial control and decision-making power during the earn-out period. The majority of consultancy sales involve an earn-out period of two to three years, so you should factor this into your plans. If you have a sizeable amount of money linked to an earn-out, then you must be in a position to influence all key areas of the business. This is something that you and your advisors will need to negotiate in the Sale and Purchase Agreement (SPA) with the buyer.

So, if post-SPA, the buyer decides to change the terms or direction of the business in a way that affects your earn-out, then you can refer the new management to the agreement. On occasions, you will have to escalate matters to protect your earn-out value. The SPA should also provide for a situation where there has been a material change and may require the buyer to buy the seller out before the end of the earn-out period.

There are always grey areas that occur post sale or during the earn-out period. The best thing to do is handle these situations in a reasonable manner. It helps the situation when you have a good relationship with the buyer.

Note: 90% of deals involving consulting businesses will have a structure which includes some sort of deferred payment, with most taking the form of an earn-out – find out more here.

  1. After selling your business, how did you take care of the key employees that were not stakeholders?

Although we didn’t have a formal structure in place, the six most senior employees did get a portion of the completion and earn-out funds. However, with other key employees, I rewarded them financially or with one-off experiences.

For instance, I offered an employee a once-in-a-lifetime holiday that would create a lasting memory, rather than give them a few thousand pounds. In essence, I rewarded staff on a discretionary and personal basis.

  1. Why did you need an advisor?

Having been through a previously unsuccessful process I was clear on the value an advisor brings. Advisors, like Equiteq, give you a better rate of return due to their expertise with M&A and valuations. They also act as a buffer between the buyer and seller, providing you with intricate knowledge and confidence to negotiate the best possible deal for your business.

Read how Equiteq helped strengthen and lead Blue Sky to a premium sale.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.

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