Most business owners don’t prepare sufficiently for the sale of their business. To get a premium price for a business you actually need to start sometimes two to three years in advance, preparing your business, ironing out the wrinkles, making it saleable long before you take it to market to try and sell it.
Transcript
Hi there this is Dylis Guyan and welcome to the Inspired Selling Podcast the place where business owners and salespeople discover how to attract, convert and retain more of their ideal clients. I’ve got a fantastic guest once again for you this week. I’m going to be talking to Rob Goddard who is going to talk to us about this really important issue that we should all be thinking about and it’s about planning and growing our business so that we realise the full value of it when we come to exit. You know when we come to sell and Rob is the man to help us get the very best price that we can for our business.
So, let me just give you a little bit of background on Rob he’s an experienced astute business man who spent more than thirty years working at senior levels in financial services, commercial banking and insurance in both the U.K. and the U.A.E. I know Rob’s very fond of Dubai this might just come out as we’re talking. He’s spent thirty years in that environment but for more than fourteen he’s been involved in mergers and acquisitions helping S.M.E. business owners to realise the full exit value of their business.
He’s an expert in business valuations and has a deep understanding of what acquirers are looking for and what they value most highly. Because it’s not of course just about selling your business or about you getting the value, it’s about finding the people who are good buyers for your business. Rob has a deep understanding, an extensive knowledge and experience in fact he has done more than three hundred and thirty eight successful deals representing more than two billion in transaction value, that is huge Rob.
Welcome to the podcast this morning Rob I’m really excited and interested to hear more about this. When you talk about growth to exit could you just expand on a little bit and give us some more context.
Rob: Yes certainly and in fact we’ve given you old information it’s not three hundred and thirty eight it’s three hundred forty one now; three hundred forty two next Tuesday.
Dylis: Marvellous deals by the day.
Rob: Long might that continue but certainly growth to exit most business owners don’t prepare sufficiently for the sale of their business and we find to get a premium price for a business you actually need to start sometimes two to three years in advance preparing your business, ironing out the wrinkles, making it saleable long before you take it to market to try and sell it.
So that’s what I mean about the growth process. So it’s growing the business but with an end purpose which is to sell up maybe 100% although some business owners re-fall in love with their business as they go through this process and don’t actually want to let go so sometimes they may not sell 100% they may sell a percentage of it.
Dylis: Right okay and of course when they’re working with you, you’re helping them with the processes and systems and everything which I know we’re going to get into as we go through this interview but tell me Rob what are the consequences of not planning ahead?
Rob: It can be quite dire; the worst-case scenario is the business owner has an unsalable business because there’s things in the business that actually make it hugely unattractive for an acquirer or an investor. Also, businesses are saleable at a low enough price so anyone can sell a business if you go low enough but of course no seller wants to sell for minimum, they want as much as possible.
So there are a lot of businesses out there in the past, currently and I daresay in the future that don’t prepare sufficiently. They therefore then sell at a discount or they can’t sell it at all and they feel quite bruised from the process.
Dylis: Yeah and I know from my experience in financial services dealing with businesses, that a lot of people would say to me, well of course my business is my pension.
Rob: Yeah I used to be an IFA back in the old days in the 1980’s and I had business owners saying the very same thing; do you know what all those business owners don’t have a business anymore and their pension is gone with them.
Dylis: Yes.
Rob: It is true to say that a business is probably the largest single asset for the ordinary normal person; owner manager. It’s probably bigger than their house in terms of value so it’s the single asset that’s probably going to generate the largest capital sum for them when they’re looking to retire at some point down the line.
Dylis: Of course, the danger with it as well is, if you are relying on that being part of your pension or part of your retirement income and you don’t realise that full value, I can see why people would feel bruised why they would feel disappointed and quite aggrieved really that maybe they hadn’t started planning earlier.
Rob: Yeah, it’s right you actually have to nurture and grow that asset like any other asset but you’re right, often it gets neglected. I’ve written a couple of books but my third book I think I will entitle ‘the tyranny of the urgent’.
Dylis: Right yes.
Rob: The owner manager that never has enough time to do the right things. They don’t have time to prepare their business, they don’t have time to take a will out, they don’t have time to take life insurance, key man insurance and cross options on their shareholdings. All of those things they recognise are important, but they never seem to get round to doing it.
You were right I will get the U.A.E. in because I’ve just flown back from Dubai last night. I had four engagements, four speaking engagements and at the last one I talked about exit strategies; you can either sell up a business or the other exit strategy is you die in office.
What I didn’t know is that someone in the audience had just lost his business partner. He came up to me afterwards in tears and said…I apologised profusely, and he said no, no you don’t need to apologise it’s real life that you’re sharing. He said just obviously it’s raw and it touched something inside of me but my business partner who’s now dead kept saying I will get around to it, I will get around to it, I will get around to a will and he died in a country with Sharia Law. So business owners often don’t get around to doing the right things so we’re there in order to help people prompt them and act as a critical friend and get those things done.
Dylis: Yes and it’s that accountability Rob as well isn’t it, it’s you know you’re telling the story that people they know they need to do it but they don’t get around to it because they haven’t got time and they feel that other things are more urgent. Having someone like you is a great…not just giving people the steps to follow to grow their business but the accountability piece so that…it’s like you know well I’ve got to do this because Rob’s coming in or the lovely Phillip is coming in.
Rob: I’m a nice person really, I don’t intimidate but we do have an actual program, a growth to exit program which is a business mentoring, business coaching offering for that very reason that you just said Dylis it’s to plan the campaign ahead.
Dylis: Yes.
Rob: Then make sure it’s executed, and we are that critical friend accountability piece for the business owner that they find so valuable and helpful. Sometimes we can spend two to three years with a business owner, preparing and moving their business forward. It often grows in terms of shareholder value in that time but it’s more saleable at the end of it and therefore more likely to sell first time around when the time comes.
Dylis: Yes indeed, so what do you say when you’re talking to businesses, initially, or even just in your every day kind of coming up and you’re talking to business owners what do you see as being the biggest mistakes that they’re making apart from what we’ve just touched on there that they’re not making the time and they’re not even taking action, even those who do decide that they need to act, to do something and take action and not doing it quick enough? What are the mistakes that you’re seeing?
Rob: So the most common ones; number one – the lack of succession plan and by that I mean the business can’t run day to day without the owner and that’s a real problem because if you are the business as a business owner, If you’re listening to this podcast and the business revolves around you day to day, your business may be unsalable because the one thing when you come to sell it you’re not selling is you, you’re exiting stage left.
Dylis: Yes.
Rob: So it’s like selling a car without an engine and a car without an engine is scrap metal. It may sound a harsh thing to say but that’s reality quite often. So, unless you’re prepared to stay on for a few years under new ownership and there’s no way around it and in fact if you are prepared to stay on under new ownership let me ask you one question, when is the last time you had a boss? It maybe 20-30 years since you had someone above you telling you what to do. Though a lot of entrepreneurs are owner managers find that a very uncomfortable life and actually leave.
Lack of succession plan is the most common problem that a business owner has quite often business owners are a legend in their own lunch time they are calling the shots, they make their own microcosm, microclimate, they may have 30-40 staff that can come into their office asking for their sage advice, any time of the day, any day of the week.
That’s fine in terms of running the business if that’s your preferred management style but if you want to sell it to a third party, a complete stranger, that could be a problem. So succession plan, lack of, is one and the second most common is lack of robust financial reporting.
Dylis: Okay.
Rob: You would be amazed at how many business owners do not have robust financial reports. Either being accounts and management accounts and even the accounts that are filed at company’s house are sometimes not drawn up in accountancy with general accountancy principles; they’re not. Again, that may not cause a problem in the day to day running but since you’ve come to sell it and someone’s looking at your business with a microscope under something called due diligence they’ll pick this up and they’ll use it as a leverage to chip on price.
So, lack of succession and so make sure you’ve got a number two, make sure you’ve got a team of directors ideally to run the business day to day and make sure your financial reporting mechanisms are beyond reproach and are robust. Those are two major tips.
Dylis: Yeah and something you’ve just touched on there ‘they will use that to chip away the price’.
Rob: Oh look sometimes we’re buyers, we’re on the other side of the table sometimes and that’s exactly what we do when we represent an investor. It’s like separating the gazelle from the herd when you’re a lion.
Dylis: Great analogy. The thing is, people have to think about, if they will allow themselves the space to think and plan ahead they have to start thinking about getting into the shoes of the buyer.
Rob: Absolutely because it’s like anything in selling anyone listening to this that’s in sales the first thing that you do, this should resonate with salespeople, put yourself in the shoes of the person opposite that you’re looking to sell to. What are they looking for, what are they not looking for, you’re reflecting their body language, your reflecting the language that they’re using as well. That can often be forgotten but yes you do need to walk in the moccasins of the other person.
Dylis: Yes and are there any other major mistakes that you see or are they the two…we’ve got three now actually one is that.
Rob: I’ll give you a fourth if you like?
Dylis: Go on then. I’ll just recap on the things that we’ve talked about. So, one is that they don’t stop to plan ahead because they’re so busy with everything that they don’t take the time to actually think about planning ahead to get…you know make sure that they get the best price at the end.
They don’t think about their succession planning and they’re carrying the business on their shoulders and when they leave really the business can crumble when that person leaves. The other thing was about having robust accounts and that’s fairly obvious really isn’t it when you know you think of a buyer coming to look at a business and to bid they’re going to be looking at those things.
One of the things that you also touched on it was about, you know, if you’re going to stay in the business for a while so you know somebody buys it and you’re going to stay in. A friend of mine, her husband sold his business and he was on contract for two years following the buyout; it was absolutely the most miserable time of his life, he hated it, he absolutely hated it. So you know that’s an example of making sure that you’ve got your succession planning in place which of course are all the things that you do. So, go and share a fourth one with us Rob.
Rob: Commercial versus emotional; most owner managers and when I come to sell my business Evolution, I know I’ll fall into the trap of being defensive. I’ll be emotional about the sale of my business because I gave birth to it, I’ve nurtured it, it’s my baby and now I’m sitting in front of a trail of complete strangers who have cash on the hip wanting to buy my shares in the business in exchange for cash.
They’re going to criticise my company, they’re going to find things and then make them bigger so they can chip me on price. I know they’re going to do that, that won’t stop me emotional. I’ll actually have a trained negotiator sitting alongside me, someone who could do the negotiation piece. I can be half a step removed and be less emotional, I can consider what’s being said and exchanged.
So a lot of business owners get emotional about the sale of the business particularly when you’re talking numbers and of course the buyer has none of that baggage, the buyer is usually a larger company, they’ve bought before, many times before. They are commercial they’re looking at the numbers; they’re looking to get the business for as little as possible, cheaply as possible, with minimum fuss.
So this is commercial versus emotional so one of the things we encourage and coach our clients during the process is just don’t rise to the bait let us do the negotiation, you’re sitting alongside us and can chip in but let us negotiate the deal for you and try to remain as unemotional as possible. Pleasant and considerate and let off steam once they’ve gone. That’s really really hard.
Dylis: Yes and this is the benefit of having someone like you come in and be the coach, be that critical partner, be the accountability partner to give someone the exact steps and these little nuggets of information that all added together make such a difference at the end.
Rob: It does, and we can say you know what what’s just happened is normal and when someone hears that a client here’s that, you can see on their face they just relax, it’s normal.
Dylis: Exactly you know out of three hundred forty-one businesses sold.
Rob: To date.
Dylis: You would know everything about everything and all of the pitfalls and the things that people need to be wary of.
Rob: We’ve seen a lot, I daresay they’ll be some surprises in the future but we’ve seen a lot, I’ve seen a lot. There is very little that surprises, we could buy and sell businesses in a sector and we can work with clients of any size any business size. Usually eighty percent of things that come up we’ve seen before easily; are very common and probably another nineteen percent on top of that have come up more than one occasion before. We’ve been there and worn the T-shirt.
Dylis: I think the other thing to bear in mind is that if you have a professional like yourself come in and walk through that process with you, you are far more likely to get a greater value. You know we’ve kind of touched on getting that…what was the word…realise the full exit value. You…and I know some of the examples of businesses that have sold and the uplift on value that you have achieved for them.
Rob: Yeah, you’re right we over the last five years we’ve achieved a 45% uplift on a business value, compared to an accountant valuation sort of a reasonable middle of the road valuation. That’s largely down to skill of my team but also, it’s about competitive tension because you know what if you’ve got something for sale Dylis and you’ve got more than one person who wants to buy it…do you know what I learnt this at Portsmouth University, you charge more.
If you’ve got more than one person who wants what you’ve got the price is going to go up. What I learned from economics, is the law of demand and supply but many business owners forget that. They only speak with one potential buyer and what they’re doing in effect and unwittingly is leaving cash on the table. To drive up price you need competitive tension and you need the right people representing you. Those two things will ensure that you get maximum value for your business.
Dylis: Often business owners will go well I can’t pay for someone like Rob to come in and you know pay for those professional services but actually its false economy because they’re making more at the end anyway.
Rob: Yeah I’m often asked because I do lots of speaking engagements, have done for years and I’m sometimes ask from the floor live, what’s your fees and I don’t shrink away from it and in fact I normally say where we’re reassuringly expensive. Because if you pay peanuts you’ll get monkeys is another expression. So, you have got to pay professional fees with the right professionals in order to do the job for you.
You are exactly right Dylis you can spend tens of thousands of pounds paying for a professional to represent you, but they could add millions to the sale price of your business depending on how large you are. So, it’s not brainer I have to say. When people don’t want to pay its usually retainer fees they don’t want to pay upfront fees. I say that’s fine either go and do it yourself if you’ve got fifteen hundred hours to spare next year or go to someone who looks to be cheap or certainly a lot cheaper and then come back to me in six months time when the business hasn’t sold and we can do it properly.
Dylis: Yeah.
Rob: If feel quite relaxed about that. If people are only looking to spend a few thousand pounds to sell the business that is not enough, absolutely not enough it’s tens of thousands in terms of a retainer and then we charge a percentage which is our commission on the deal.
Dylis: So there’s two things there. One is about getting a buyer, so using someone professional like you is getting a buyer but also maximising the value and realising the full value that you can bring.
Rob: I have an eight-person team in Evolution our international research centre they find buyers all over the world both for U.K. customers, U.K. clients that are looking to sell and also our U.A.E. clients looking for international buyers. They can find eight people working five days a week, ten hours a day can find buyers
Dylis: Yeah it’s incredible and I do know a bit about your company and I’m really impressed. Hence why I asked you to come on to the Podcast today because I just know you’ve got such valuable information for people.
Rob: The resources yeah.
Dylis: What are those the key elements that people should think about and put in place right now and then move forward to getting someone like you to come in and walk that journey with them.
Rob: Okay so initially we don’t mind investing a bit of time and some skin in the game by just having a two hour discussion with a fellow business owner about where they are and where they want to be and I have to be honest sometimes we’re not the right partner for that company and we’ll be honest enough to say I’m not sure that we can help you at this point in time. But most of the time we can help the business owner.
So we put some time in and give some advice and a bit of a steer and some guidance. Usually the things that we say upfront in order to make the business saleable down the line. Don’t be at the centre of your business. That means things like the website if you’re the only person on your website that is an owner reliant business to any acquirer.
Dylis: Yes.
Rob: No matter how you say it runs itself you’ve shot yourself in the foot with the website. So actually, make sure the prominent people are your key members of staff because that’s what you’re selling, is the people you’re leaving behind, certainly the key ones. So succession planning going to number two if you haven’t got one at least a G.M. a general manager that can run it day to day and you sit above them and give direction and strategy. Ideally though you want to team of directors and that takes years to build with the right team.
Also coupled with that upskill people; don’t keep everything to yourself as an owner manager why not delegate, why not upscale your team, why not have…do you know what there are people in my company that are better than me. I own the equity but they’re better than me at a whole range of things. I’m not great at research I don’t have an eye for detail, but I’ve got some fantastic researchers in my company so it’s about up skilling and delegation so that’s one key thing.
The other thing is get the numbers right. If your accountant isn’t producing timely thorough accounts, change them. Your business might have outgrown your accountant.
Dylis: Yes.
Rob: Having an accountant that’s not up for the job, fit for purpose when you’re selling a company is a bad move. It could cost you the deal in the worst situation you could lose millions because your accountant isn’t up to scratch for the sale of the business. Those would be the two gems I would leave people with.
Dylis: Fantastic so Rob if someone would like to have a two-hour session with you or just an initial conversation how can they get in touch with you?
Rob: So they can fill in a form on our website, they can pick up the phone to the office, it’s either me or one of the team; I have a team of directors here and senior people they will happily listen and decide, okay well maybe we should have a meeting and talk through where you’re at or email me on and I’m sure some details might come up on rgoddard@evolutioncbs.co.uk
Dylis: Right so let me just cover that again so the website is www.evolutioncbs.co.uk
Rob: No the web site is www.evolutioncbs.co.uk
Dylis: Yeah and your email?
Rob: The email is rgoddard@evolutioncbs.co.uk
Dylis: Fantastic it will be in the show notes anyway but if anyone’s watching this on YouTube for example it won’t but I can put it in the show notes on there too. The number of your office Rob what’s the telephone number if anyone wants to just make a call?
Rob: That’s a very good question.
Dylis: Well don’t worry because I shall find it. Here it is +44 (0)118 959 8224
Rob: What they can do is go on to Amazon and look for a lovely blue book called ‘The Eleven Commandments and the Seven Cardinal Sins of Selling a Business’ its a blue book it’s got a cartoon of me on the front.
Dylis: Yeah.
Rob: It would tell you all you need to know about maximising value in business and it’s on Amazon.
Dylis: Fantastic thank you so much this has been so insightful and I’m sure that many people will be watching or listening to this and thinking I need to do something, I need to take some action now. I’m just going to leave with a little story I was working with some sales leaders this week and they were saying “Oh Dylis I haven’t got time” and I said let me tell you about the guy who’s up in a tree and he’s cutting a branch down and the neighbour goes past and he says “What are you doing?”
He said, “ I’m cutting this branch down because it’s casting a shadow crossed my kitchen window” The neighbour said “Oh yes good luck there mate”. Two hours later the neighbour goes past again, the guy’s still in the tree and he said “Well what on earth are you still doing up in that tree?” He said “I’m having a terrible job because my saw is blunt”. He said “well why don’t you get down and sharpen it” He said “I haven’t got time”.
Rob: Brilliant.
Dylis: Isn’t that sometimes what we do?
Rob: “The tyranny of the urgent” my third book.
Dylis: Yes indeed so we should say goodbye on that note and thanks once again Rob.
Rob: Thank you very much take care bye everyone.
Dylis: Bye.
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Email: dylis@dylisguyan.com
