The hospitality and leisure industry is one of the world’s biggest employers. Some of the best-known global brands are active participants. But it is also home to many small and start-up enterprises. A good living can be had for many years by offering advice and marketing services to this huge market.
You can be small and yet still have major projects to run, often on an international basis.
However, time waits for no man. We all grow older.
Eventually business owners consider selling their enterprise… or perhaps buying another one to create more value. They may want to simply cash-in, retire or just ‘get out’ for a few years and relax.
But few entrepreneurs take time to think out how this can be achieved. Perhaps they think that, having run very large events for well-known brands, then selling their own enterprise will be easy in comparison.
Not so. It is quite hard to switch from being in total control of all the logistical variables of an event to having little control when selling. Some business-owners confide that selling their business is like having to say goodbye to their children and never seeing them again. (Of course, the money you stand to gain will be some compensation! )
It’s important to have the right expectations. So, if you are thinking of selling, what should you be doing now to make sure that it all goes ahead as smoothly as possible?
Timing is certainly one major issue. You need to think in terms of 6 to 9 months between taking the decision to sell to actually completing the deal. And this is by no means unusual. In some circumstances it could take more than a year. For a major enterprise the deal could take 2-3 years, if it is dependent on future financial performance.
Documentation is crucial. It may be that your business runs very smoothly without excessive note-taking. But a buyer will want to see written evidence of processes in place. Once you are gone, there will be no way to check up on what is going on. In particular, you need to get into the habit of doing monthly management accounts. Someone independent needs to know how your business really works.
Verbal agreements based on personal relationships are fine if you do not need to justify what you are doing. But a buyer will want to know that your major clients are legally contracted, that key staff are employed with contracts and that banks or investors who regularly give you cash or credit are all declared and accounted for.
That includes paying yourself and, say, your business partner the going rate for the jobs you do. Anyone can make a profit if the directors are not remunerated in line with the market.
Think about what figure you want to sell for. It is astonishing how many small business owners over-estimate wildly the value of their enterprise, often in the millions. In fact most are worth very much less, if you apply sound accounting measures such as EBITDA. If you cannot afford to sell for less than that imaginary ‘million’, do you, perhaps, need to postpone the sale for a few years?
Could your business run without you there? Few entrepreneurs plan their succession properly. They feel no-one can run their enterprise as well as they can. So they never hire a team to even attempt it. This leads to a knock-down price offer from a clever buyer who says, quite rightly; ’If I am paying good money for this business, I need to know that it will run smoothly once the founder has gone…I am actually buying the remaining team’s skills, not the skills of the owner.’
‘I am actually buying the remaining team’s skills, not the skills of the owner.’ Finally, get ready to pay for professional help. Many small business owners are used to getting professional accounting or legal help on a part-time basis or even doing it themselves. They rarely realise how many professional hours it takes to sell a business successfully. Fees of $25,000-$50,000 are not unusual…and, if you include marketing fees and introducer costs, the total bill could be much higher.
Whatever you do, take the project as seriously as a client project. The level of detail and investigation required to sell a business can be overwhelming, especially if you need to continue to manage your existing business successfully at the same time.
It’s not going to be easy. But, then again, most entrepreneurs have had 30 or more years to get ready for ‘exit’. Not having enough time to do it right is a poor excuse for not getting the best possible deal.