Episode 15 - The Hidden Cost of the Wrong Exit Advisor

The Hidden Cost of the Wrong Exit Advisor 

SME & Family Owned Baby Boomer Businesses - stressful to leave money on the table - showcase your business - but find the right way first.

In this episode:

1 - Preparing and Timing - Data Room - Video - present both the good side and what could be improved with innovation/technology systems or processes - barriers to entry 

Remember these businesses are where entrepreneurial ideas and intellectual capital emerge 

2 - How to get a Good Advisor - research and ask around, go online yourself  - you are not a listed company or large corporate so cost and value add is important -  conduct a two way interview to build Trust

3 - What Matters is not just financial analysis ability but industry and M&A experience - there is no substitute for experience in operating or managing in your industry 

The most important input to a credible advisor:

Network - the depth and breadth of an advisors relationships, and not just a pitch book 

Transcript

SPEAKER_00 0:00

Hi everybody, welcome to episode 15: The Hidden Cost of the Wrong Exit Advisor. I've run a theme throughout this podcast series about baby boomer businesses and SME family-owned businesses who need to transition, i.e., exit their business. And the the thematic has been it's kids don't want the business. You've started a business when you were younger and you've used the your fingernails and you've you've dragged the business up, you've created something special. You need to remember that the it that SME related businesses and small family-owned businesses are where entrepreneurial and intellectual capital uh come through. So we need them, we need them to continue. Innovation doesn't happen without startups and and then you know family-owned businesses, all sorts of good things have come from that. But you want to showcase, you want to get out, you want to showcase your business in the best possible way. And in your mind, it's stressful. You know, am I gonna get the right amount of money? How do I know who do I go to to showcase my business? And what happens if it's failed and there's no success. So there are a lot of issues. I'm gonna go through three things today. One is uh preparation and timing, the second is how to get a good advisor, the third is what matters, not just about financials. And to finish, I will give you the most important tip in getting uh your business presented and sold properly. But number one is preparation and timing. I have previously discussed getting a data room set up. The data room allows you to upload all your information, your HR records, your legal records, the structure of your business, client lists, although you should should leave them unnamed until you get right to the final day of a of a signing of a sales and purchase agreement. Very important. It allows you to sleep at night, you can ongoing update information in the data room, you can password protect it. It's an inexpensive exercise, but a lot of people just don't know that. And it's key. The buyer, the potential acquirer will always ask for more information if they need it, but it allows you to get on with your job while you're in a selling process and allows the potential acquire to look at information as and when they need it. Second thing is if you can, and I've mentioned it on a previous episode, it's got a short video, a 50 to 70 second video that presents the business and the journey, which would be compelling to somebody that looked at it. You don't need to say, I'm selling my business or I'm raising capital. You just need to present the business in a way that makes people go, that's interesting, I'd like to know more about it. And there are ways to do that. You can contact me later if you if you need to know how to do that. But you you in preparing and timing, you want to be able to give yourself time to think about what's good about the business that I've created and what are the potential challenges and opportunities going forward? How could it be improved? Could innovation technology, could better systems and processes be put in, and that you you know you're at the end of your time and you want somebody else to do that, or you think another business is more appropriate to do that. What are barriers to rent? What are barriers to entry to the business? And in all businesses, there are barriers to entry, particularly SME-related businesses. Well, you look like oh, I can open this type of shop or or this type of service uh business or whatever. They're all different. Every individually owned business is different because the manager, the owner, is different to the one up the road that looks the same and smells the same. They're not, they're all different, they've all got individual uh components and expertise into them. Most important thing is you say to yourself, okay, I want to I want to embark on this journey. How long is it going to take? How do I get somebody that can help me? So this is point two. How do you get a good advisor? Research and ask around. Ask people that have used advisors that have got them effective outcomes. There are there is a raft of people, consultants and advisors that will tell you, hire me, I can get it done. Listed companies and large corporates can afford to engage large advisory firms with huge track records, and they will charge a fortune to do it. But SME-related businesses and family-owned baby boomer enterprises, they it it's something it's new to them. They don't know how much is the right amount to pay and who do I trust. And this is an iterative two-way process to trust. So ask people, ask people around, and they'll always come up with an idea and and and whatever you but ask them have do they sell your business or do you know someone that sold your business? Use whatever, do your own research. I always say to people when they go to Asia for the first time to look to open a business or scale a business or find a strategic partner. In the modern world with social media and Google, you you can look up yourself who is in your space. You can approach those people directly who's in your space. Going to a chamber of commerce is fine, but opening up a Yellow Pages phone book and going for a drink and saying, who do I meet? It doesn't work. The same phone book is being recycled every time a new person flies in there. Do your own research. Put in, put the inputs up what your business is and what looks and smells like your business. And in any country that you go to, you will be able to dig up and then you can read reviews and you can find out what's good and what's what's not bad. But you you you'll potentially find advisors doing the same thing. Research advisors with a track record. When you go, when you sit down with an advisor, if the if the advisor's any good, they will not promise you anything. They will tell you that throughout my career or my expertise and experience, I will endeavor to get you involved in high-level discussions with potential acquirers of your business, and ultimately the decision is yours. It's nothing to do with the advisor. The decision to sell to somebody or not to sell to somebody is yours as the owner. But the advisor should, if they're sensible, ask you a couple of hundred questions. I've said this many times, to find out about your business. If they're not asking you that many questions, and some of them will be questions that you won't have been asked before, then they're not who you want. And conversely, you need to ask them what industries have you raised capital in, what industries have you uh bought and sold businesses in, and what's your success? Show them what's your track record? They must have a CV. If they tell you I can do this, and I've got a bunch of people I know that can do that, that's not good enough. Okay? So do your due diligence. You if you if you spend time researching and okay, interview a couple of people. It's not it's not a five-minute exercise finding somebody that you can trust and then get references and do all sorts of things. But do research on who would be an ideal person to help me sell my business, transition, sell my business. And the mechanics of it are you will need to pay them a retainer and a success fee. If you don't pay them a retainer, they they won't it's not it doesn't show that you're serious about selling your business. So pay them a retainer, negotiate that, and do something that's fair because you want to motivate them to work for you. Anyone can say, sell my business on a success fee, but no one's gonna do it because there might be 20 people trying to sell your business and you don't get paid until you sell it. Pay them a retainer so they're focused on getting an outcome because their benefit will be the success fee at the end of that. But the retainer, even if you do it exclusively or non-exclusively, it shows that you're committed to selling your business through an appropriate channel. It again, it's iterative, but if you get the right person or group, it'll work well for you. Number three, what matters is not just financials, but industry and MA experience. Experience in your industry in either operating or managing or having uh raised capital or bought and sold businesses around that industry is vital. If they haven't done specifically that, then synergies around that are important. But you really need industry experience. There's no substitute for knowing what you do and how you present. In the 200 questions, they will uh ask a bunch of generic questions that they would have asked people that they've taken on uh mandates for before, and they'll ask you new questions, which is how the advisor learns. And then you between the two of you will work out whether the person has got the industry expertise and and and whether they can you know find a right partner. Financial analysis is important, but the buyer will do that. Your accountant and uh will help you upload to your data room, and sophisticated investors know how to read data. They'll ask the the finance manager or the CFO where did the money come from, how has it been spent, and what could be done better. Not just you as the owner, they want to ask. Key personal involved. But but that's important. To finish this short episode, I want to tell you one thing. The only thing that matters in you getting an outcome is whether the advisor has got a network. And what I mean by that is relationships and network, not just a pitch book. Anyone can put a pitch book together. Anyone can tell you I've got relationships. But it's the real network that you can test and try. If they only know three people, your business is not going to get sold unless a miracle happens. They need to have been doing this for a period of time and have an extensive network, and the buyer that may not come from who you think. You lie awake knowing who your competitors are, what your competitors do well and don't do well, and you've already thought maybe they should should be a potential acquire. It's likely that the acquirer of your business will come from somewhere you haven't thought about. And it's network, network, network. Anyone can charge you a fee, anyone can say I'm good at this. Check out their track record and ask how good their network is. Thank you. Thank you for listening to this. It's just a short episode, but I'm passionate about it because it's something that owners of businesses just generally don't know how to do well and they need support doing it. If you've got questions or you want to know more from me, hey Jamie at privateenlister.com, and I'm always happy to talk to you and give and give you advice and or or thoughts on what what works and what doesn't. Don't trust everybody that talks to you about buying or selling your business. Do your own due diligence. Thank you.