Time to Bring Your Endgame?
Increased levels of investor activity offer opportunities for businesses looking for a sale
The phrase “end-game” was first noted in relation to chess and coined in the mid-19th century. It has since been adopted for a variety of circumstances where a strategic closure event is outlined, including an Urban Dictionary version linked to fans’ deduction of the likely relationship between two characters.
This article refers to the commercial endgame, the point in a business owner’s planning where the time has come to cash in the chips, let go and focus on new goals. That decision can be as part of a clearly set out strategy, the unplanned response to a life-changing event or any point between.
Whatever the motivation, now might be as good a time as ever to consider the prospects of selling your business. Why might that be? Despite repeated news bulletins talking of the plight of the economy, there is no shortage of proactive investors looking for a suitable opportunity. The availability of potential acquirers is now being matched by the number of business owners who’ve decided that the endgame is imminent.
We’ve all heard of the “Great Resignation” employees who decided during the pandemic that their job was not fulfilling, their true calling or simply worth the effort. The impact of this shift in employee perspective has sent shockwaves around the world with many positions proving hard to fill. Business owners were no doubt impacted by this phenomenon, not only with difficulty hiring but also with the contemplation of their own future and what that might look like outside of the ties of the company.
In truth, there are many motivations for deciding to sell your business or divest part of it.
- Planned – A pre-determined period in which the business owner sought to create and then sell the business they formed. If all key performance targets have been met and the business looks set for the next stage of growth it can be an excellent time to find a buyer who’s seeking high-growth opportunities. Let’s be honest that’s what most will be looking for.
- Retirement – Stepping out of the business at a time that allows for the owner to capitalise on their endeavours and still be fit and healthy enough to enjoy the returns. A very common justification for selling a business.
- The Great Rethink – We touched on the impact of the “Great Resignation” with employees above, but equally that phenomenon could apply to the person who owns and runs the company. So much time and energy can go into running a business that life can literally whizz by. Having had a pause during lockdowns you may feel that it’s time for an alternative role.
- New Ventures – Successfully running a profitable business may provide the confidence to seek larger opportunities. Natural entrepreneurial tendencies often see owners scoping trends and opportunities which hold the potential for even greater returns.
- Run Out of Road – Have you taken the company as far as possible given the resources, location, and market? Perhaps a national/ international brand would be interested in adding your business to its portfolio.
- Reaction to Recession – If the business has declined over recent years and profitability becomes ever harder to achieve the economic outlook might stimulate thoughts of sale. You would prefer to be selling at a time of better outlook but nevertheless, clear and accurate records and signs of market potential can still attract strong interest. Note, a potential buyer will be undertaking due diligence so it’s not advisable to overstate future sales or profitability.
- Threats Ahead – If you’re seeing parallels in your company with Blockbuster Video (retail) or Betamax (manufacturer) one thing is certain, change is constant and technological, cultural, legal, and economic shifts can and do have a devastating impact on future prosperity. It could require new owners with deeper pockets and greater R&D resources to repurpose the business.
- Valuation too Good to Ignore – After years of hard graft building a successful business the time appears right to cash in and enjoy the benefits of the sale.
- Unforeseen Events – Life can throw up circumstances which can immediately change perspective. Covid-19, lockdowns, the health of the owner or an illness of a close family member may dictate a change in focus.
If you recognise yourself in any of the above scenarios it could well be the time to have a conversation with the Commercial team at Mogers Drewett. It doesn’t need to be an imminent event; in truth, we would prefer to start a dialogue as early as possible, understand your objectives and work with you to maximise the final sale value.
One of the key questions we’re obviously asked is, “What’s the business worth?”. Unfortunately, there’s often no short answer as the calculation is based on a variety of criteria, all of which can be influenced by having a managed approach to that “endgame”.
Rushing into the process may slice considerable value from your business value by not having an accurate financial projection or clear package setting out the strengths of your firm. I would stress that anyone who offers you a quick and attractive-looking valuation may be acting in the same manner as an over-eager but not very effective estate agent. They’re seeking a portfolio of sellers for their shop window. If it seems too good to be true it often is just that!
Our approach centres on you and your all-important needs from the process. There is little point in flattering a seller with an inflated valuation. That tactic will only end in crashing disappointment when either no one makes an offer or those who do pitch very short of that inflated expectation.
Experience has shown that the endgame in a business sale is where you should start. Focus on the outcome desired. A realistic target often still requires work in building the appropriate package any serious investor will insist upon. This can be as basic as the premises looking at their best, equipment working and fully tested/ serviced, up-to-date accounts, staff contracts compliant and in place and no skeletons in the locker. That last point refers to any outstanding legal actions, supplier disputes conflicts of interest, negative credit rating or long-term contractual commitment which is commercially unattractive.
Despite working with hundreds of business owners over the years we know enough not to make assumptions. We work in partnership with your senior team and help put in place the measures that will provide the best possible reflection of the company, working towards a sale. We’re also mindful of the potential disruption such discussions can create worried staff, unsettled managers, and directors with ulterior motives, we’ve managed all and more.
If the possibility of selling your business could become a reality in the next couple of years, we’d recommend an initial chat, at the earliest opportunity, to explore that all-important and hopefully, ultimately rewarding endgame.
Tom Webb – Partner Head of Corporate Commercial – Mogers Drewett
Tel. 01225 750003
Mobile: 07971 871232 Email: tom.webb@mogersdrewett.com