Mon 17 / 07 / 17
How to sell your business: easing the transition
Nick Brown, a partner at Plummer Parsons, talks about how to sell a business and gives us his top tips on easing the transition.
Selling a small business can be a complex process. Outside of the necessary operations to make the sale like enlisting a broker, an accountant and an solicitor, there are factors you need to consider in order to maximise the profit of the sale. The timing of the sale and strength of the business’ operation and structure are the primary influencers that determine the level of confidence your buyer has in the sale, and thus, drive up, or down, the percentage of profit.
Planning a comprehensive exit strategy can be a vital component in not only expediting the process of the sale and transfer of ownership, but in instilling confidence into your employees and your new buyer, protecting the value and operational capacity of the company.
The majority of business owners are familiar with exit planning and exit strategies, but an area often forgot, with a huge impact on the outcome of the sale, is the development of an effective entry plan. Commonly known as a ‘Transition Plan’ and built with the new owner-operator in mind, it should prepare the business and eventual buyer for the process of the transition. Through it, an owner can paint an attractive picture of his business, helping to obtain fair value in a sale, as well as detailing the core values, procedures and protocols of the business, leaving it in more than capable hands.
But what exactly should a ‘Transition Plan’ accomplish?
Maintain Employee Confidence
Putting a strong focus on the future of the company after the arrival of a new owner will go a long way to reducing employee uncertainty, dissatisfaction and, subsequently, turnover.
Employee uncertainty is one of the biggest risks when selling a business, both to the sale itself and the company afterwards. Clarifying what the transition will look like and how it will, or will not, affect employees supports morale and allows a confident articulation of the expectations and necessary preparations to be made for the event.
Although there will always be an element of uncertainty, discussing important employee questions with the incoming owner - such as if there will be redundancies, if HR policies will change and if salaries will have to be renegotiated - and setting expectations within the company, can keep operations running consistently throughout.
Consistency of Business Operations
An effective transition plan should detail actionable operational strategies that slowly transfer over ownership, whilst keeping the company business as usual, throughout the deal negotiations, the due diligence period, and the first 100 days post-sale — particularly if the CEO plays an integral part in the day-to-day business operations.
If a significant value is only attached to the business through an owner or departing senior management it could turn a potential buyer from the sale. Similarly, if performance slips during the due diligence period, the eventual sale price could be impacted negatively.
Focus on outwardly maintaining service and revenue and inwardly keeping procedures and processes uniform and consistent.
Preserves Your Legacy
Whether it’s a small to medium sized regional business, or a large corporation, chances are it not only carries significant weight to the surrounding community but to you and the entity and reputation you’ve helped construct. If you started the business from scratch, or came in at a later date, departing from something you’ve invested so much into, will always carry difficult questions of what exactly you’re leaving behind.
Although codifying a legacy into an actionable business plan may seem like an amorphous task, you can use the transition plan to articulate the foundation on which the business was built and communicate the norms, values and vision necessary for its continuation. Whether it is the cultural standards the business upholds, its mission or customer promise, and the values by which the company operates on a day-to-day basis.
More than a passion project, accounting for your legacy in a transition plan helps to not only finalise your exit, but also to better prepare the business, its employees and its customers for the changeover. By outlining the potential pain points a new owner might experience as he transitions into the business and considers new hires, operational changes and growth strategies a CEO can mitigate any uncertainties the buyer has about how his departure will affect the business.
How do you create a Transition Plan?
The details of your transition plan are ultimately dependent on the circumstances of your buyer and your business. There are however a few key stages to consider when developing your transition plan, for a clean and successful passover.
- Survival - The survival of the business is the number one priority of the sale. Give a clear and total picture of the operations, forecasts, profitability and any essential information necessary to your business succeeding after you leave.
- Commitment- All managing partners and employees must commit to the concept that the business has to continue in order to create opportunity for those to come. This commitment must be communicated extensively and often.
- Recruitment - The organisation cannot survive unless it is staffed with the best people. Make sure your best employees are reassured and well versed going into the transition period.
- Development - Investing time in developing your existing employees, particularly senior management, and acknowledging and responding to their thoughts and fears is key.
- Announcement - Having come this far, it is time for the founder to announce his or her future plans.
- Implementation - How is the transition plan going to be best implemented in alignment with existing hierarchies and procedures? A transition plan should limit interference with the daily operations of the business as much as possible.
Thank you to Nick for providing this blog. Nick Brown is a partner at Brighton accountants Plummer Parsons, where he is also Head of Charity Audits and Payroll. You can connect with Plummer Parsons on Twitter, Facebook, Google+ or LinkedIn.
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