By David Jorgenson, CEO at Equiteq.
Selling your business is a long and demanding process that can last anywhere from 4 to 9 months. During this entire time the business needs to continue to show the same growth trajectory as in the years leading up to the sale – all the while dealing with the added demands of compiling the information required by those investigating whether they’d like to make an offer.
Potential investors continually monitor the company’s financial forecast throughout the process as this is an excellent lead indicator as to whether the business is being well managed. If the forecast is inaccurate by a large amount (either low, or high), this will set off alarm bells with buyers, so it needs to be reliable. If what you forecast differs dramatically from what actually eventuates, this needs to be addressed as a priority before thinking about selling.
This links to how much visibility of booked work versus the budget the company has as it enters the process. A firm with significant work booked 12 months ahead is more appealing than one with work booked only 3 months in advance. However the work also needs to be happening when it’s scheduled to happen, as unlike product sales – in consultancy there’s no way of making up lost time; once a day has passed with someone sitting on the bench due to a start date being pushed back then that day – and fee – is gone.
Continuing the theme of forward visibility, buyers will also be scrutinizing how the company is doing against its current year plan. If it’s behind, then they will want to know why. But even if it’s ahead, this is not necessarily a good thing as it shows inaccuracy in the planning.
People are of course the resource that drives the most value in a consultancy-style business, so if there is high staff turnover – especially key staff such as senior salespeople – then this will worry buyers. Are your key strategic people happy and well looked after to ensure that they don’t seek out other employment opportunities? If they’re walking out the door they’re likely taking with them some of the value you want to sell in the business.
The sales process itself impacts on employees in a number of different ways. If staff are excited about the potential buyer and new work opportunities it may bring, or even increased remuneration, then this can increase motivation. However, if the buyer is not seen as stimulating then the opposite can be true. Staff may have to help compile information for the sale which can add to their workload and decrease their motivation; you don’t want their performance dipping as you’re trying to maintain profit growth.
The buyer could also impact on the clients the company is able to sell to once the deal goes through. For example, if a management consultancy is sold to one of the Big 4 who audits an important client of the consultancy, then this will mean that they can no longer sell in consultancy services, impacting upon revenue.
There are a lot of balls to juggle during the sale process and to ensure you achieve the best possible price, they all need to be kept in the air. Dropping one could see a potential buyer dropping out.
If you are preparing to sell your consulting firm and would like to discuss your exit plans, please get in touch.
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