As business leaders, our focus should be on creating highly sellable businesses that are attractive to potential buyers. This will give you the freedom to move on to the next great opportunity when the time comes.
The events of the global pandemic have drastically affected businesses – and have shown how prepared and ready some were to take advantage of the opportunities offered, and how some weren’t.
We’ve seen record acquisitions and exits in Australia; from CitrusAd’s $205 million exit, Invoice2Go’s $850 million capital injection, Cloud Guru’s $2 billion acquisition, and even one of our own clients,
What did all these businesses have in common? Amazing products? Impressive clients? Bankable P&L’s? Sure, but they are table stakes. These businesses were ‘ready’. So, what does readiness look like, and what does it look like to be ‘ready’?
At our most recent referral thank you lunch, we brought together business leaders from across Australia and New Zealand to share best practice knowledge from experts and discuss how these leaders would approach different stages of readiness.
How to financially prepare to sell your business
Bryn Leggett was our financial expert that spoke to being financially ready for a merger & acquisition (M&A) process. Bryn has an extensive background in finance, and now offers outsourced CFO services to SMBs aspiring to achieve high growth through his company Hello CFO.
Bryn asked the key question: How do you become ‘financially ready’? When you look at your phone on a Monday morning, and see an email referencing a partnership opportunity or an approach from another business exploring merger and acquisition conversations with you – are you going to be ready?
Would sharing your business’s financial information with this prospective partner bring up any surprises?
In order to eliminate stress, avoid surprises, and walk into an M&A meeting with confidence, Bryn shared three key rhythms to start implementing today:
1) A monthly finance meeting
Sit down and look at your performance, interrogate the numbers, have operational and strategic conversations about how finance in your business is going, and what you need to think about. The upshot is that through implementing structures to report on numbers means that they’ll be familiar, and if anyone asks you for number, you can seamlessly share them with another party.
2) Develop financial hygiene practices
You’ll need to sort out the structural and contractual aspects of your business now, so that you’re in a good place internally.
Basic hygiene for any business is good bookkeeping, reporting, and formatting. Scrutiny of these basics will bring up issues that you may not have seen before but can now add to your agenda to fix.
Creating a regular forecast helps you look over the horizon and have visibility of where you’re going. Maintain it monthly. A good forecast shows what you’ll expect in revenue and customer numbers, and what resources you need to support growth. Having this means you’re sharp with your numbers, and you can speak to that with potential buyers – all of which will reflect when a buyer is having conversations with you.
We invited the assembled leaders to contemplate their own readiness.
So, what other valuable insights did our business leaders share on being financially ready?
- Identify financial indicators for the type of business that you’re in, rather than relying on a generic list of KPIs.
- Your metrics can shape the story of your business and what you’re telling your buyer, so it’s important to keep an eye on these.
- Include cashflow forecasting as it will pick up how well you’re managing debtors.
How to prepare your people when selling your business
Our people expert was Amy Phillips, who’s a domain and people management expert. Amy owns Horizon Management Group, an outsourced HR consultancy that helps SMBs manage their people well. Amy spoke to getting the organisation’s people ready as well as creating a roadmap for staff acquisition and retention.
Referencing Jim Collins’ First who, then what concept, Amy shared insights on how businesses need to demonstrate three key things to prospective buyers that demonstrate that they’re ready to sell:
- That they can keep the good people they have (sustainability)
- They have the good people to perform (productivity)
- They can get the right people in the first place (growth)
Amy also discussed “the great resignation” and how business leaders will need to able to keep their people through periods of turbulence and change, as well as overcome the challenges of the mass movement of people so it doesn’t negatively affect their business.
Amy’s key message was that there should be no surprises.
One way to ensure no surprises is having regular communication with employees, an approach that improves the performance and satisfaction of people who stay, and identifies the people the organisation wants to attract.
One way to do this is through managers having conversations with their staff, asking questions such as “What knowledge do you want to develop over the next 6 months?” and “What do you enjoy and not enjoy here?”, as well as providing opportunities for their people to be recognised for what they do.
The business leaders at our roundtable also shared their own tips:
- Developing value and trust takes time, and they don’t come by chance – they begin with a relationship which starts with talking and being open.
- Acknowledge where things are, good or bad, and set a cadence of communications on the basis of values and safe places to be heard.
- It’s important to revisit communications strategies to account for recent events surrounding flexibility, working from home, vaccine status, and differing circumstance. One way to assist in this is to have a schedule of planning meetings that discuss the future of the organisation and prioritise key staff in these.
- And this gem from one of our leaders: Ask two questions: “Professionally and personally how are you right now?” followed up with, “What can we do to help you, regardless of where you are?”
How to get your pitch ready to sell your business
Our expert on getting pitch ready was Jeff Lim, an industry veteran that’s ridden the roller-coaster to profitable outcome for both buyer and seller, and endured bumps along the way. Jeff is a Principal at Eaton Square, a global M&A and capital service provider.
Jeff spoke about the importance of honing in on understanding what you’re selling. Everyone should be able to describe the DNA of their business, but the key issue is that in an exit transaction it’s very rare that someone wants to buy the DNA. They’re looking for how that DNA expresses itself in just one part of the business and represents what it is that you do – it’s a clear distinction and hard to get right in being pitch ready.
Describing the two sides of where each organisation is in its development and growth stage, Jeff likened it to the two sides of the brain:
Every business lives on a continuum – from the business being dependent on the superheroes that are driving it, to enterprises that have structures that help the business run effectively without these superheroes – and exit transactions happen at all points of this continuum. It’s important to understand where on this continuum you are and know what evidence you have that proves what you’re saying is true.
Another thing to understand is where your business lies in terms of its revenue and growth cycle. Are you at a point where revenue is growing strongly and you’re on an upward swing, or are you at the longtail of the business that someone can acquire an ongoing revenue stream?
On the other side of the numbers are the emotions that are involved in the M&A process. Leaders need to understand whether they’re emotionally ready for an exit transaction. It’s a binary thing – are you at a phase where the business is still your baby and you’re nurturing it, or are you at point where your business is treated as a freedom fund and your life becomes full of choices?
Our roundtable of leaders also shared their own insights on how to prepare pitches:
- How does story and DNA manifest into the business and revenue? Leaders need to know how they can pitch these concepts all together.
- Additionally, you need to understand what the acquirer is looking for, knowing that what you perceive to be your value may not be valuable to the specific buyer in front of you right now. Jeff likened it to selling a house with a pool: if the buyer doesn’t like swimming, then don’t mention the pool.
- Clearer insights on how the DNA (the part of that this buyer wants) of the business manifest were shared: for example, an organisation may have great culture – which is hard to sell – but the culture results in having great trust with customers who then became best sellers of products. So, the DNA might be culture but the eye (the part they want) might be customer advocacy.
- And finally, reinforced the need to understand your own motivations behind selling and recognising that you will lose control of your business. Are you ready to have the future of your business and your employees out of your hands?
Start creating a highly sellable business today
It’s clear that business leaders need to start early in order to prepare to sell their business. From day one, your business should have an element of attraction to potential buyers, and mastering your finances, people, and pitch is a great way to start.
We want to thank our three speakers for sharing their time and valuable insights with us, and the assembled leaders who personalised and extended the ideas shared. It’s thanks to our fellow business leaders that we can host these referral lunches that provide a great space to share knowledge and create great networking opportunities.
This lunch discussion is held once a quarter and presents us with a chance to thank those who have been referring colleagues, customers and friends to align.me for help with their sales and marketing planning or for outsourced marketing services, and to share a little value in return.